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Mutual Fund News

The turtle approach: slow, steady and loaded with cash

swon@globeandmail.com

What are we looking for?

The Canadian stock market has fallen 4 per cent this year amid choppy markets. Given this volatile backdrop, let's see to what extent fund managers have been keeping their powder dry for future bargains.

The screen

We looked at the cash levels reported by fund companies in the first half of 2011 for Canadian equity, Canadian focused equity and Canadian dividend and income funds. (Note that some firms lag more than others in reporting holdings.) U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

NexGen Turtle Canadian Equity topped the list with a whopping 43 per cent in cash. That's nearly double the closest peer, Sentry Diversified Total Return, at 23.6 per cent.

NexGen's cash-heavy approach stems from manager Keith Graham's view that a "headwind environment" faces stock markets.

"The fiscal stimulus that was put into the financial system by the central banks really manifested itself in strong financial market performance," said the portfolio manager with Rondeau Capital Inc.

The imminent withdrawal of the U.S. Federal Reserve Bank's bond-purchasing program, also known as quantitative easing, appears to be playing out now in market volatility, said the veteran manager, who has also run money in the past for AGF Management Ltd. and what is now Invesco Trimark Ltd.

Mr. Graham, a value investor, said he can't find enough good companies at attractive prices in a Canadian market dominated by resource and financial stocks.

That's why the stock-picker, who launched his fund nearly a year ago, has increased his foreign holdings to about 20 per cent. They are mainly U.S. companies that get a big chunk of revenue from sales outside the country.

He owns defensive, health care names such as Abbott Laboratories and Medtronic, and telecom firms such as Rogers Communications and Manitoba Telecom. He had owned Research In Motion stock until recently, but sold that stock after the company slashed its sales outlook.

The manager also holds about 4 per cent in gold bullion through the SPDR Gold Shares, an exchange traded fund. "It's a hedge, a cash alternative and a stabilizer in the fund," he said.

His NexGen funds are aptly branded the "turtle funds," he said. "We are slow, steady and boring."

*****

CANADIAN STOCK FUNDS WITH LOTS OF CASH

InvestmentAssetsLast reported % of Cash inYTD % rtnCalendar year % rtn
Fund nameCategoryMER ($-mil)Holdings DatePortfolio(May 31)201020092008200720062005
NexGen Turtle Cdn Equity CGCdn. Focused Equity2.8516.35/31/201143.1-3.3n/a-----
Sentry Diversified Total RtnCdn. Focused Equity2.75439.35/31/201123.6-1.519.731.8-22.42.218.8-
Exemplar Canadian Focus Port Cl-ACdn. Equityn/a70.04/29/201122.90.221.915.8----
Mackenzie Universal Cdn Value ClassCdn. Focused Equity2.44219.25/31/201120.31.75.723.3-27.6-5.912.111.7
Fidelity Dividend-BCdn. Div. & Incm Equity2.12550.54/29/201116.25.311.832.5-22.75.215.2-
Mackenzie Ivy All Canadian ClassCdn. Focused Equity2.4432.35/31/201114.93.614.14.1-16.0-4.67.06.5
Trimark Canadian EndeavourCdn. Focused Equity2.15824.25/31/201113.76.114.741.9-36.6-14.719.33.2
Stone & Co. Flagship Stock ACdn. Focused Equity3.009.74/29/201113.49.23.021.8-45.47.515.917.6
Fidelity Dividend Plus-BCdn. Div. & Incm Equity2.12189.64/29/201111.610.719.845.9-22.15.413.7-
Mackenzie Univ All Cdn Growth ClassCdn. Focused Equity2.4531.65/31/201110.94.07.518.0-19.27.111.48.2
CI Signature Select CanadianCdn. Focused Equity2.432,928.05/31/201110.83.210.328.0-26.03.021.022.9
National Bank Cdn OpportunitiesCdn. Focused Equity2.31227.24/29/20119.3-0.813.238.0-27.5-1.713.49.4
Fidelity Canadian Growth Company-BCdn. Focused Equity2.28806.14/29/20119.21.417.623.3-37.213.38.513.7
RBC North American ValueCdn. Focused Equity2.05433.55/31/20119.05.415.328.7-22.74.617.517.5
Mac Maxxum All-Canadian Dividend ClCdn. Div. & Incm Equity2.302.55/31/20118.95.311.3-----
S&P/TSX Total Return3.617.635.1-33.09.817.324.1
Source: Globe Investor, fund companies

© 2007 The Globe and Mail. All rights reserved.

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