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Funds that steer clear of the index


Mutual funds that zig when the stock markets zag. Last week, we scouted for funds that looked and performed like the major stock indexes (closet index funds, in other words). This time, we want funds that are run by managers who steer a course that is independent of the index.


We've once again gathered up all the funds in the main Canadian equity categories and applied a statistical measure to them called R-squared (we're using three-year numbers). The lower the R-squared number for these funds, the less their returns can be explained by what's happening with the S&P/TSX composite index.


A harsh truth, which is that it's hard to be an independent-minded fund manager in a bull market. Notice the quartile rankings for low R-squared funds on our list. Almost all of them are third or fourth quartile over the past three years, which tells you they're below average (first and second quartile would be above average).

The explanation here has to do with the way in which Canadian equity managers typically buck the index these days. It's all about commodities - the index is almost 45 per cent made up of energy, mining and gold stocks, but funds with low R-squared numbers tend to have little or none. Take Trimark Canadian Endeavour as an example. According to the update most recently filed with, commodity stocks have only a trace presence in the portfolio.

Why have so many managers made a decision to avoid commodities stocks, which have powered the S&P/TSX composite index to average annual gains of 20.7 per cent on a total-return basis (including dividends) over the past three years? Often, it's a reluctance to invest in a sector that is cyclical, or prone to alternating periods of boom and bust. As hot as commodities have been in recent years, they will eventually cool. When that happens, funds with a low R-squared number may be a refuge.

Funds least correlated to the index
As of
As of Oct 2007LastOct 20073-yr
Net assetsreported3-yrquartile
Fund nameFund category(000s)MER dateMERR-squaredperform.
Beutel Goodman Canadian IntrinsicCanadian Focused Equity2,37428-Sep-071.4323.543
Cote 100 PremierCanadian Equity28-Sep-072.5025.364
Diamond North American ValueCanadian Focused Equity4,86531-Oct-053.3730.004
Trimark Canadian EndeavourCanadian Focused Equity1,665,62431-Oct-072.1232.504
AIC Dividend IncomeCanadian Focused Equity288,61529-Dec-062.4532.724
Mackenzie Ivy CanadianCanadian Focused Equity3,585,90530-Jun-062.4035.444
Mackenzie Ivy Canadian ClassCanadian Focused Equity63,47330-Jun-062.5135.664
AIC Canadian FocusedCanadian Focused Equity601,73429-Dec-062.4736.194
Mackenzie Univ Canadian GrowthCanadian Focused Equity1,073,70530-Jun-062.4036.643
AIC Canadian Focused Corporate ClCanadian Focused Equity70,68329-Dec-062.4536.744
Mackenzie Cundill Cdn Sec ClCanadian Focused Equity101,45330-Jun-062.5137.204
Mackenzie Univ Cdn Growth ClassCanadian Focused Equity19,96430-Jun-062.5237.543
Mackenzie STAR Cdn Max Equ GrowthCanadian Focused Equity4,05829-Jun-072.7141.814
Mackenzie Maxxum Dividend GrowthCanadian Focused Equity1,433,79030-Jun-062.4144.174
AIC Diversified Canada Corp ClassCanadian Focused Equity55,25929-Dec-062.4544.704
Cote 100 Canadian EquityCanadian Equity28-Sep-072.2044.744
Mackenzie Maxxum Canadian ValueCanadian Focused Equity269,19630-Jun-062.4144.814
AIC AdvantageCanadian Focused Equity1,100,88729-Dec-062.4745.362
Mackenzie Maxxum Cdn Val ClassCanadian Focused Equity3,09730-Jun-062.5345.454
AIC Advantage IICanadian Focused Equity794,32029-Dec-062.7345.662
AIC Diversified CanadaCanadian Focused Equity1,411,13429-Dec-062.4746.034
Mackenzie Maxxum DividendCanadian Focused Equity1,667,34730-Jun-062.4146.354
Quadrus Mac Mxm DividendCanadian Focused Equity416,61330-Jun-062.4246.354
AIC Advantage II Corp ClassCanadian Focused Equity63,26329-Dec-062.7346.412
Trimark Canadian - SCCanadian Equity994,29231-Oct-071.6446.434
Mackenzie Maxxum Dividend ClassCanadian Focused Equity170,35630-Jun-062.4946.524


© 2007 The Globe and Mail. All rights reserved.

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