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Pierre Bernard isn't interested in hanging on to a lot of cash during the stock market turmoil.

"Why should I second-guess the market?" asks the 51-year-old manager of IA Clarington Canadian Leaders Fund. "Do we really know as portfolio managers when to pick the trough and the peak? It's a joke."

Being fully invested hasn't hurt returns compared with peers, or meant taking lots of risk. His growth-oriented fund is the winner of the Lipper Award in the Canadian equity category for one- and three-year performance.

While his fund lost 23.5 per cent in 2008, it beat the 35-per-cent decline of the S&P/TSX composite index. The fund has posted an annualized return of 1.8 per cent over three years, and 6 per cent over five years. He typically invests in 30 Canadian firms considered leaders based on criteria like return on equity, strong balance sheet, and quality management. "The portfolio will be more expensive than the average," he said. "I am not shy about paying more to be sure of quality and stability." As soon as his cash hits 10 per cent of the fund, he will spend it to buy shares on a pro-rata in all the stocks in his portfolio. Last year, Mr. Bernard was able to reduce risk in his portfolio by investing in two sectors that do not move in tandem with each other.


Francis Chou has been sitting on about 40 per cent to 60 per cent cash since launching his Chou Asia stock fund more than six years ago.

"I was just concerned with transparency issues," says the 53-year-old founder of Toronto-based Chou Associates Management Inc.

"Sometimes in Asia, a lot of the stuff you see on the balance sheet and income statement may not be what they are."

His high cash position also stems from the fact that he is a deep-value investor and was having trouble finding compelling bargains in the bull markets of recent years. More recently, he has been concerned with the U.S. economic slowdown because many Asian companies export to North America.

While his fund is focused on Asia, he will also buy Canadian or U.S. listed stocks if the bulk of a company's business is there.

Because the Chou Asia Fund is not focused solely on Asian stocks, Mr. Chou won the Lipper Award in the global small- to mid-cap equity category for one- and three-year performance ended Dec. 31, 2008.

While his fund lost 18 per cent in 2008, it beat the 38-per-cent average loss suffered by its peer group. The fund has also posted an average annual return of 3.3 per cent over three years, and 7 per cent over five years.


Cecilia Mo has a new shopping list these days for her Fidelity Income Trust Fund.

Dividend-paying common and preferred stock as well as convertible bonds are on her radar screen. She is expanding her horizons as the income trust market shrinks because of Ottawa's plan to tax them like corporations by 2011.

While some of her income trusts have already converted to common-stock companies, it doesn't mean that Ms. Mo has to sell them immediately.

"Crescent Point Energy Trust will be converting from an energy trust to a corporation, but I still own it," said the fund manager with Pyramis Canada LLC, a unit of Fidelity Investments. "It is still a good company, and it gives me the yield I am looking for."

She also has 11 per cent in cash - down from 15 per cent last year when she was quite bearish. "I always run a pretty high cash component," said Ms. Mo, who joined Fidelity as an analyst in 2000.

Her attention to risk has helped her fund win a Lipper Award for one- and three-year performance ended Dec. 31, 2008, in the Canadian income trust equity category. While her fund lost 22 per cent last year, it beat the S&P/TSX capped income trust index's 25-per-cent decline.

Over three years, the fund's average annual loss is 2.5 per cent compared with an 8.2-per-cent decline for her benchmark.




With 14 years of covering the real estate sector, RBC Dominion Securities Inc. analyst Neil Downey has seen some ups and downs.

"Last year was a pretty tough year for equity investors as a whole," says Mr. Downey, named by StarMine as No. 1 in earnings estimate accuracy for the real estate sector, including REITs. "The property sector did pretty poorly last year, though there's a small consolation prize in that Canada was actually a little better than other markets."

With the S&P/TSX Capped REIT index down about 38 per cent in 2008 - the same level of decline as was seen in the American markets - the companies Mr. Downey follows actually fared worse than the S&P/TSX, which pulled back about 33 per cent.

Mr. Downey says he doesn't expect to see earnings growth in his sector until at least 2010, given that the companies he follows tend to lag the overall market. And because the industry is so reliant on credit, it's essential banks get back on a proper footing if any recovery is going to take hold this year, adds Mark Rothschild, an analyst at Genuity Capital Markets.

"It was the worst year on record for Canadian REITs," says Mr. Rothschild, ranked as the third-best real estate earnings estimator. "It's clear the REITs are following financials more than ever, and when credit conditions are worsening REITs continue to struggle."


There's a measure of frustration in Richard Tse's voice as he thinks back on the year-that-was in the Canadian software industry.

"It was a difficult year, and it's a little odd because the sector has changed so much over the past few years," says Mr. Tse, rated No. 1 by StarMine in earnings estimate accuracy in 2008 for the software and IT services sector, and No. 4 overall for earnings estimating. "In some sense, it's true to say that the sector was overly penalized by the broad pullback in pretty much every sector."

This year, he's placed "outperform" ratings on five companies - Research In Motion Ltd. RIM-T (with a 12-month target of $92.10), CGI Group Inc. GIB.A-T ($12), 20-20 Technologies Inc. TWT-T ($3), Logibec Groupe Informatique Ltée LGI-T ($22) and Constellation Software Inc. CSU-T ($38).

RBC Dominion Securities Inc.'s Mike Abramsky, who placed No. 2 for the sector in earnings estimating and first in sector stock picking, says software companies proved they were able to earn during a recession. Among his top picks with "outperform ratings" for this year are Apple Inc. AAPL-Q ($165 target), Research In Motion ($110.52), CGI Group ($13), Palm Inc. PALM-Q ($12) and Constellation Software ($35).

"[Weak markets] didn't change anything for us; we had a good opportunity to recommend names that were perhaps cases of the baby being thrown out with the bathwater."


Doug Young wastes no time when asked to describe what it was like to be a financial services analyst in 2008.

"Can you say crappy?" he asks. "It was easily the hardest year for earnings estimates. Everything was hit, and nothing was spared. It's not like the last downturn, when tech got hit. Everything has been clobbered."

Mr. Young has covered the sector for TD Securities Inc. for eight years, and was named No. 1 for earnings estimate accuracy for financial services by StarMine for his work in 2008.

His coverage universe includes life insurers, asset managers, and stock exchanges - anything financial that isn't one of the Big 5 banks. The S&P/TSX financial index plunged 38 per cent as global financial markets melted down late last year, and he said the damage from the crash has made this year just as difficult.

"It's a difficult environment, of that there's no doubt," he says. "I think there's still a lot of uncertainty with equity markets and the stocks we cover. There's a lot of volatility, and that scares the bejesus out of people. Generally we believe it will be a tough year for all the companies we cover in 2009, but we do see earnings improvements on the horizon for 2010."

Geoffrey Kwan of RBC Dominion Securities placed second in earnings estimating for the sector, and third for sector stock picking.

© 2007 The Globe and Mail. All rights reserved.

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