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Mutual Fund News

These index funds stick to the fundamentals

rcarrick@globeandmail.com

What we're looking at

We continue this week's coverage of small, low-profile mutual fund companies that don't get a lot of exposure with a look at Pro-Financial Asset Management. Pro-Financial's products are index funds that take a different approach than most of their peers.

Our screen

Pro-Financial's lineup is presented here from largest to smallest. To assess performance, we've presented quartile rankings over the past three years (the funds aren't old enough for a longer-term view).

Quartiles divide funds in a category in four groupings - a ranking in the first and second quartiles is what you want to see as an investor.

What we found

Pro-Financial funds track a series of fundamental indexes in the FTSE RAFI family, which are different from the stock indexes we follow most closely to monitor the markets. Those indexes - the S&P/TSX composite would be an example - weight stocks according to how big they are, whereas fundamental indexes factor in revenues, dividends, book value and cash flow. The net effect is to place more emphasis on stocks that are undervalued and less to stocks that have soared.

The fundamental indexing approach is gaining a following and has been used by a few members of the Claymore family of exchange-traded funds with very good results. In Pro-Financial's case, comparatively high fees for index funds are crimping results a little. Example: Pro FTSE RAFI Canadian Index-A has a management expense ratio of 1.88 per cent, while the comparable Claymore Canadian Fundamental Index ETF (CRQ-TSX) has an MER in the low 0.7-per-cent range. While the ETF made 13.7 per cent last year, the mutual fund made 11.6 per cent.

Comparisons like this are somewhat irrelevant, however. Pro-Financial products are designed to put fundamental indexing in the hands of investment advisers who sell mutual funds and don't have access to ETFs. Our screen shows that, in the mutual fund universe, Pro-Financial funds have competed well in the past three years.

Note: The F-class funds are for fee-based accounts, while the class A and B funds are for regular accounts. Class B funds pay a little more in compensation to advisers, hence the higher fees.

***

PRO-FINANCIAL ASSET MANAGEMENT

Fund nameAsset categoryLatestMERAssets($-mil)(Dec. 31)3-yearQuartileRank3-yr Avg.AnnualRtn (%)
Pro FTSE RAFI EM Index-FEmerging Markets Equity0.9834.610.3
Pro FTSE RAFI Global Index-FInternational Equity1.0234.41-6.4
Pro FTSE RAFI Canadian Index-FCanadian Equity1.2423.014.1
Pro FTSE RAFI Canadian Index-ACanadian Equity1.8819.112.5
Pro FTSE RAFI Canadian Index-BCanadian Equity2.0717.312.3
Pro FTSE RAFI Global Index-BInternational Equity2.1511.72-7.5
Pro FTSE RAFI US Index-FU.S. Equity1.0211.21-2.2
Pro FTSE RAFI US Index-BU.S. Equity2.159.51-3.4
Pro FTSE RAFI EM Index-AEmerging Markets Equity1.919.51-0.8
Pro FTSE RAFI Global Index-AInternational Equity1.958.92-7.3
Pro FTSE RAFI US Index-AU.S. Equity1.968.51-3.2
Pro FTSE RAFI EM Index-BEmerging Markets Equity2.117.22-1.0
Pro FTSE RAFI Hong Kong China Idx-AGreater China Equity1.964.21-0.6
Pro FTSE RAFI Hong Kong China Idx-FGreater China Equity1.032.110.1
Pro FTSE RAFI Hong Kong China Idx-BGreater China Equity2.161.41-0.9
Source: Globeinvestor.com, Pro-Financial

© 2007 The Globe and Mail. All rights reserved.

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