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The ups and downs of low-volatility investing


Searching for equity funds that let you sleep at night.


First, we gathered funds in all major equity categories and isolated those with the lowest levels of volatility, which is one gauge of the risk level in owning an investment product. Lower-volatility funds are defined here as being those with score of 0.8 or less using a measurement called beta. A fund with a beta of 1.0 is said be just as volatile as its benchmark stock index. The lower the beta, the more muted its volatility is in comparison to the index.

Next, all the funds with betas of 0.8 per cent or less were ranked according to their returns for the year through Aug. 31. For a longer-term view, we also displayed each fund's quartile ranking over the past five years. Quartiles divide funds in a category into four groups - first quartile is best, and fourth is at the bottom.

So what did we turn up?

First off, it's important to note that all major global stock indexes are down for the year, including the S&P/TSX composite index. So it's a testament to a fund's safety orientation if it has stayed in positive territory through 2008. A total of 16 low-beta funds are in positive territory for the year, and another eight have held their losses to less than 1 per cent.

Many of the low-beta funds that made money so far this year have less than stellar five-year performances. This brings us to a fuller understanding of low-volatility investing - it may protect you from the worst of a down market, but it also can prevent you from enjoying the highest highs of a strong market.

There are some exceptions here and, oddly, many of them are in the Canadian dividend and income category, where many funds have been weighed down by their exposure to a weak financial sector. Stone & Co. Dividend Growth Class Canadian A has managed to combine first quartile performance over the past five years with a very solid gain in the challenging environment of 2008. Dynamic Dividend Value, Ethical Dividend and Scotia Canadian Dividend also stand out for having offering low volatility and good short- and medium-term gains.

Mackenzie Universal Canadian Growth looks to be an interesting package: half the volatility of the index and very strong returns in the past couple of years.


Low Beta Equity Funds

As of Aug. 31, '08
Assets ('000)3-yearYTD %5-year
Fund nameCategoryas of Aug. '08BetareturnQuartile
Dynamic FocusPlus EquityCanadian Focused Equity299,5320.485.83%3
Marquest Dividend GrowthCanadian Small or Mid Cap Equity0.675.28%1
IA Clarington Cdn Conservative EqtyCanadian Equity272,2430.754.80%4
Mackenzie Univ Canadian GrowthCanadian Focused Equity1,036,7090.504.21%3
Stone & Co. Div Growth Cls Can ACanadian Dividend and Income Equity141,7970.753.22%1
Altamira Precision US Midcap IndexU.S. Small or Mid Cap Equity12,5560.662.67%2
Dynamic Dividend ValueCanadian Focused Equity388,3270.781.75%1
Mulvihill Total ReturnGlobal Equity0.221.73%2
BMO U.S. Special EquityU.S. Small or Mid Cap Equity22,5200.791.48%4
RBC North American ValueCanadian Focused Equity157,2120.691.06%1
Beutel Goodman Canadian IntrinsicCanadian Focused Equity2,2690.350.95%3
AIC Canadian FocusedCanadian Focused Equity405,7360.590.61%3
imaxx Canadian Equity ValueCanadian Focused Equity42,8450.780.41%4
Ethical Canadian DividendCanadian Dividend and Income Equity283,9520.760.35%1
Scotia Canadian DividendCanadian Dividend and Income Equity2,375,5390.710.30%1
AGF Dividend IncomeCanadian Dividend and Income Equity742,6710.710.08%1
Altamira Select AmericanU.S. Small or Mid Cap Equity38,7390.78-0.19%4
Beutel Goodman Small CapCanadian Small or Mid Cap Equity276,6300.68-0.46%3
RBC Canadian DividendCanadian Dividend and Income Equity9,633,7580.72-0.46%1
IA Clarington Canadian DividendCanadian Dividend and Income Equity2,073,5120.72-0.54%3
Renaissance Millennium High IncomeCanadian Small or Mid Cap Equity991,9820.57-0.57%3
TD Dividend GrowthCanadian Dividend and Income Equity3,013,9720.63-0.70%1
Chou AssociatesGlobal Small/Mid Cap Equity604,3590.44-0.75%3
Mackenzie Ivy CanadianCanadian Focused Equity2,607,6180.30-0.75%4
Standard Life US Mid Cap-AU.S. Small or Mid Cap Equity7,5860.64-1.18%3
Mackenzie Ivy Foreign EquityGlobal Equity2,279,3800.68-1.38%3
Manulife U.S. Mid-Cap Value ClassU.S. Small or Mid Cap Equity62,2990.64-1.64%2
Dynamic FocusPlus Small BusinessCanadian Small or Mid Cap Equity74,7220.51-1.72%1
CI Can-Am Small Cap Corporate ClassCanadian Small or Mid Cap Equity92,5580.58-1.79%1
Saxon World GrowthGlobal Small/Mid Cap Equity298,3630.78-2.25%4
United Cdn Small Cap Eq Pool-WCanadian Small or Mid Cap Equity190,3580.64-2.36%1
ABC Fully-ManagedCanadian Focused Small/Mid Cap Equity113,5250.77-3.05%4
Diplomat Maximum Growth PortfolioGlobal Equity6,6770.78-4.58%2
Compass Growth PortfolioGlobal Equity197,8040.78-4.99%1
Scotia Selected Agg Gwth PortfolioGlobal Equity121,5220.69-5.09%2
Strategic Agg Growth Reg Pt 1-Ver 2Global Equity0.79-6.31%1
Strategic Agg Growth NR Pt 1-Ver 2Global Equity0.79-6.33%1


© 2007 The Globe and Mail. All rights reserved.

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