WHAT ARE WE LOOKING FOR?
Index beaters among U.S. stock funds over the long haul.
It isn't easy for active managers to beat their benchmark over the longer term, especially in the U.S. market where there is wider analyst coverage of stocks than in Canada.
We asked Victor Tan, analyst at Globe Investor's fund unit, to rank U.S. equity funds by the best performers among those with at least a 15-year track record. Segregated, duplicate and U.S. dollar-versions of funds were excluded.
WHAT DID WE FIND?
North Growth U.S. Equity Fund was the star at the top of the heap with an average annual return of 9.7 per cent compared with 3.2 per cent for S&P 500 in Canadian dollars. It was one of seven in this select club of veteran funds.
The North Growth fund may not be on most investor's radar screens because it is only sold to accredited investors. "All our resources at devoted to this fund," says Rory North, who has been lead manager since 1999. "We don't market, have a high minimum [$150,000] and don't pay brokers to sell it."
North Growth was started in 1992 by his father Rudy, a co-founder of Vancouver-based Phillips, Hager & North Investment Management. When he left the firm, he transferred the small U.S. stock fund to his new firm, North Growth Management Ltd. in 1998.
Mr. North, who follows his father's investment strategy of looking for growth stocks trading at reasonable prices, says the fund's low management expense ratio of 1.2 per cent has certainly helped performance versus its peers.
The team tries to identify great businesses, and one key criteria is strong balance sheets. That is why the fund now has a heavy weighting in technology stocks like Apple Inc., Microsoft Corp. and Cisco Systems Inc., he said.
"They have that magic combination of pretty bullet-proof balance sheets, plus the best long-term growth prospects out there and attractive valuations."
During the Internet bubble in 2000, the fund was 40 per cent in cash, had a very small weighting in technology, and was focused largely on smaller-company stocks. "Today, we are fully invested with 50 per cent of our portfolio in technology and 80 per cent plus in large caps," says Mr. North.
While some market observers see the current market recovery as bounce in a bear market, he disagrees.
"I think we are in the early stages of a bull market," Mr. North says. "I think that we are going to see a strong recovery [in the United States] than people expect."
|How U.S. stock funds have fared over 15 years|
|(As of May 2009)||Latest||(June 19)||(May 31)||% returns (as of May 31, 2009)|
|Fund name Assets ($-mil)||MER||YTD % rtn||YTD % rtn||1-yr||3-yr||5-yr||10-yr||15-yr|
|North Growth U.S. Equity||184.4||1.20||9.7||4.0||-19.1||-7.2||-3.9||6.0||9.7|
|McLean Budden American Equity D||674.5||1.25||-2.1||-5.4||-24.7||-7.1||-5.3||-1.9||5.9|
|Dynamic American Value||253.5||2.41||-0.6||-0.4||-24.7||-4.8||0.5||-0.7||5.4|
|Investors U.S. Large Cap Value-C||1634.3||2.85||-8.1||-10.3||-23.8||-8.9||-6.1||-2.8||5.2|
|CI American Value||265.1||2.32||0.1||-3.8||-25.8||-5.8||-3.0||-3.0||4.2|
|Mawer U.S. Equity||27.6||1.25||-6.1||-10.4||-21.6||-6.1||-5.6||-3.1||3.9|
|CI American Equity||262.1||2.32||6.5||2.0||-31.6||-12.5||-8.2||-5.8||3.7|
|MD American Growth||205.8||1.46||5.6||2.0||-27.2||-9.3||-8.2||-7.4||3.2|
|GGOF American Equity Fund Ltd Class||11.1||2.24||-3.3||-7.3||-25.7||-10.1||-7.1||-3.8||3.2|
|CIBC U.S. Broad Market Index||372.8||1.00||-4.9||-8.4||-25.5||-9.0||-6.4||-4.8||2.9|
|AGF American Growth Class||459.2||2.95||7.0||3.8||-30.0||-7.0||-5.3||-7.3||2.8|
|CI Synergy American||231.9||2.32||-2.9||-5.4||-29.5||-9.0||-3.6||-4.2||2.6|
|TD U.S. Quantitative Equity-I||238.8||1.52||-2.5||-6.3||-23.5||-10.2||-7.5||-6.1||2.4|
|Scotia CanAm Index||59.2||0.98||-4.3||-8.2||-27.5||-10.1||-7.7||-6.6||2.2|
|Ethical American Multi-Strategy||37.6||2.39||3.5||-0.7||-21.8||-10.0||-7.5||-8.9||2.0|
|Russell US Equity Pool-A||-0.9||-3.8||-27.9||-10.7||-7.8||-7.1||1.7|
|Fidelity Growth America-A||20.9||2.58||-1.5||-4.3||-30.3||-14.9||-10.0||-7.0||1.2|
|Frk US Rising Dividends-F||1.3||1.51||-7.9||-12.2||-20.6||-9.4||-7.7||-6.4||1.1|
|Leith Wheeler U.S. Equity||22.7||1.34||-8.2||-9.2||-22.8||-10.8||-7.3||-5.8||1.1|
|Beutel Goodman American Equity||32.2||1.33||-6.8||-9.8||-19.5||-5.0||-3.6||-4.7||1.0|
|PH&N U.S. Equity-D||192.7||1.18||-7.0||-9.6||-28.0||-11.1||-9.3||-7.3||0.9|
|RBC U.S. Mid-Cap Equity||313.2||2.00||-0.8||-3.8||-31.8||-11.0||-4.8||-4.3||0.7|
|Altamira US Equity||20.3||2.62||-7.2||-10.5||-28.0||-10.6||-8.8||-9.0||0.5|
|Renaissance US Equity Growth||6.0||2.62||3.4||6.8||-28.2||-12.4||-10.3||-8.5||0.4|
|PH&N U.S. Growth-D||42.4||1.25||-3.3||-6.5||-23.6||-8.4||-6.3||-4.4||-0.1|
|BMO U.S. Growth||48.2||2.44||-1.0||-5.3||-30.0||-11.2||-9.0||-8.3||-0.1|
|Scotia U.S. Growth||29.4||2.57||-8.9||-12.2||-33.0||-12.3||-9.7||-8.6||-0.9|
|AIM American Growth||13.8||2.93||-0.2||-3.6||-18.4||-8.7||-8.0||-12.1||-2.9|
|Investors U.S. Large Cap Growth-C||147.7||2.85||13.7||8.0||-27.5||-7.6||-7.1||-9.1||-3.3|
|S&P 500 Composite||2.0||1.8||-34.4||-10.2||-3.9||-3.4||4.8|
|S&P 500 Composite ($ Cdn)||-8.9||-27.6||-10.4||-8.0||-6.3||3.2|
|S&P 500 Composite Total Return||3.0||-32.6||-8.2||-1.9||-1.7||6.7|
|Source: Globe Investor|
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