When bad things happen to good mutual funds, smart investors pay attention.
Stock markets as irrepressibly strong as we've seen lately make it tough to find opportunities to invest in anything that hasn't soared in price.
One strategy is to look for mutual funds with excellent long-term results that have stumbled lately.
In today's high-flying markets, they represent a rare opportunity to buy low.
Another approach is to look for long-time laggards that have turned things around in the past few years.
These funds include comeback stories - once respected funds that hit long-term slumps - or funds under new and better management.
Both of these strategies were fed into the fund filters on the GlobeinvestorGold website and the results are presented here. Some quick notes before we get to the funds:
All mutual fund categories were considered, but U.S.-dollar versions of funds, pooled funds and segregated funds were excluded.
Funds have been evaluated according to their quartile performance, which reflects returns relative to peers over selected periods; a first-quartile ranking means a fund is among the elite in its category and a fourth-quartile means the opposite.
Funds were automatically knocked off the list if they had a management expense ratio of more than 2.5 per cent, an arbitrary limit designed to screen out egregiously expensive funds.
Minimum investments of $10,000 or less were required.
Manager continuity is key - to make the list of buy-low candidates, a fund must have been managed by the same people for at least the past five years.
The Screen: These funds all have first-quartile results for the 10 years to March 31, and fourth quartile results in the past 12 months. In other words, they're long-term stars that have fallen back among the laggards in their respective categories in the past 12 months. Remember, all of these funds continue to be managed by people who were responsible for all or much of the strong 10-year returns. Ten-year returns are vastly more important than one-year results, but there's nothing to say a fund's current slump couldn't be prolonged. So don't buy and expect an instant turnaround.
Three funds from the Dynamic family top our list, which is ranked alphabetically. Dynamic has had a run as one of the hottest fund companies around, thanks to strong returns throughout its lineup. Here, we find a reminder that no fund stays hot forever. Investors looking to broaden the global exposure in their portfolios might investigate Dynamic Global Value, which has been managed by Chuk Wong since 1999 and is one of only a dozen or so global equity funds that hasn't lost money for investors over the past 10-year period. One proviso is that this fund is more volatile than most in its category and plunged almost 44 per cent in 2008, compared with 31 per cent for the average global equity fund. Dynamic Power Canadian Growth is a similar story - a wild ride that cumulatively has generated excellent returns over the past decade.
|Fund||Category||Assets ($ mil.)||MER (%)||1-Year Rtn (%)||CategoryAvg. Rtn.||10-YearRtn.||CategoryAvg. Rtn.|
|Dynamic Global Value||Global Equity||923||2.39||3.8||8.2||3.27||-0.02|
|Dynamic Power Balanced||Cdn Neutral Bal||2,398||2.06||6.71||9.1||8.96||4.69|
|Dynamic Power Cdn Growth||Cdn Focused Eq||1,993||2.32||5.35||12.91||9.57||5.4|
High-yield bond funds are popular these days not only because they've been making good money, but also because they're a useful way to diversify the bond side of a portfolio to help it stand up better to rising interest rates. This fund is pricey, as is the trend at Investors Group, but it has managed to combine good long-term results with a significantly lower level of volatility than its peers. The loss of 7.6 per cent in 2008 compared with 9.7 per cent for the category average.
|Fund||Category||Assets($ mil.)||MER(%)||1-YearRtn. (%)||CategoryAvg. Rtn.||10-YearRtn.||CategoryAvg. Rtn.|
|Investors Cdn High-Yield Income||High Yield Bond||912||2.24||6.17||9.56||7.62||5.22|
This fund offers a simple proposition: Give up some returns when markets are soaring in exchange for armour-like protection in down markets. Following the usual script, this fund has been dismal in recent days. Long term, it's a member in good standing of the exclusive club of global equity funds with positive 10-year returns.
|Fund||Category||Assets ($ Mil.)||MER %||1-YearReturn||CategoryAvg. Rtn.||10-YearReturn||CategoryAvg. Rtn.|
|Mackenzie Ivy Foreign Equity||Global equity||1,869||2.47||2.92||8.2||2.16||-0.02|
Once a big player in income trusts, this fund is now a more conventional balanced product holding a mix of blue-chip dividend stocks and bonds. Returns have dipped below average lately, but they've been well above 5 per cent. Note: Morningstar Canada says much of the distributed amount has been classified as a return of capital in recent years.
|Fund||Category||Assets ($ Mil.)||MER (%)||1-YearReturn||CategoryAvg. Rtn.||10-yr.Return||CategegoryAvg. Rtn.|
|Manulife Monthly High Income||Cdn Neutral Bal||4,916||2.11||7.46||9.1||9.15||4.69|
FOUR REVITALIZED LAGGARDS
The Screen: These funds all ranked in the third or fourth quartile for the past 10 years, which means they're not on anyone's A list. There are two reasons to give them a look, one being that their results over the past one- and three-year periods have been first or second quartile. The other is that these funds have been popular enough to have attracted at least $500-million in assets, which is substantial. The advisers and investors who chose these funds must have seen something in them, right?
The current managers of TD Small Cap Equity took over in 2005, and that's roughly when the fund began to regularly outperform its peers on average. TD Diversified Monthly Income is a similar story - a change of managers several years ago helped perk up performance.
|Fund||Category||Assets($ mil.)||MER (%)||1-YearRtn. (%)||CategoryAvg. Rtn.||10-YearRtn. (%)||CategoryAvg. Rtn.|
|TD Diversified Monthly Income||Cdn Equity Bal||591||2.25||11.46||9.98||4.07||5.16|
|TD Cdn Small Cap Equity||Cdn Small/Mid Cap||546||2.48||32.33||25.24||9.21||10.36|
Trimark was once a fixture on the list of the bluest of blue-chip mutual fund companies. Then came a buyout by the big U.S. firm now known as Invesco, followed the departure of key managers and a dilution of the old reputation for savvy, patient long-term investing. The recent revival of Trimark Select Balanced and Trimark Canadian is notable because both funds have managers who are Trimark stalwarts with tenures dating back to the 1990s. Trimark Canadian is a good example of a fund that gives investors a different look than the S&P/TSX composite index. The fund has about 55 per cent of its assets in energy, materials and financials, while the index is almost 80 per cent weighted to those sectors.
|Fund||Category||Assets ($ Mil.)||MER (%)||1-YearReturn||CategoryAvg. Rtn.||10-yearReturn||Category Avg. Rtn.|
|Trimark Select Balanced||Cdn Equity Bal||1,205||2.35||12.58||9.98||4.41||5.16|
|Trimark Canadian SC||Cdn Focused Eq||566||1.67||17.24||12.91||5.37||5.43|
© 2007 The Globe and Mail. All rights reserved.
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