What are we looking for?
Given that today is Independence Day in the United States, let's look at funds that invest in American stocks - or, to be more specific, those that invest in small and mid-sized U.S. companies.
These firms all took a beating during the 2008 market meltdown, so we'll examine how funds investing in this sector have held up over three years.
We looked at the eight best and worst performers among U.S. small-to-mid cap funds for the three years ended May 31. U.S. dollar, segregated and duplicate versions of the funds were excluded.
What did we find?
Trimark U.S. Small Companies emerged as the leader with a stellar 13.3-per-cent annualized return, while RBC O'Shaughnessy U.S. Growth was the biggest loser with a 12.7-per-cent loss.
Robert Mikalachki, manager of Trimark fund, said he hung onto most of his 30 names during the 2008 downturn, but sold a few to raise cash to buy the battered stocks of Jones Lang LaSalle and Cogent Communications Group Inc. He sold them after they more than doubled in 18 months.
During that downturn, he also bought more shares of existing positions such as memory-foam mattress maker Tempur-Pedic International Inc. as its stock plunged to around $5 (U.S.) a share from $30.
"We sold the last of our shares a few weeks ago at $65," said the value-oriented manager with Invesco Trimark Ltd. That was the biggest winner over three years. Other winners included Lithia Motors Inc. and Smart Modular Technologies Inc.
But James O'Shaughnessy, who runs RBC O'Shaughnessy U.S. Growth, said his fund suffered in 2008 and 2009 because his quantitative investment strategy uses price momentum as one of the key criteria for picking stocks.
According to studies dating back to 1926, momentum stocks "do extremely well during most general market conditions" but are usually punished in the first couple of years after major bear markets, said the manager with U.S.-based O'Shaughnessy Asset Management.
These stocks typically turn around in the third year, and "that is what we are seeing now," Mr. O'Shaughessy said. The fund is in the first quartile for the first five months of this year with an 11-per-cent gain, he noted. If history repeats itself, there should be better days ahead, he said.
HOW U.S. SMALL-OR-MID CAP EQUITY FUNDS HAVE FARED OVER THREE YEARS
|Assets||3-yr % rtn||YTD % rtn||Calendar year % rtn|
|Fund name||MER||($-mil)||(May 31)||(May 31)||2010||2009||2008||2007||2006||2005|
|Best performers to May 31|
|Trimark U.S. Small Companies Class||2.83||53.5||13.2||10.1||13.7||42.2||-31.1||-14.4||12.1||6.6|
|Pembroke US Growth||N/A||N/A||12.5||8.3||28.7||18.2||-11.9||-4.4||6.6||15.3|
|Mackenzie Univ US Emerg Growth Cl||2.49||39.2||10.0||6.8||25.1||22.0||-22.2||-9.7||4.5||7.6|
|TD U.S. Small Cap Equity||2.48||40.2||9.8||7.8||24.1||18.2||-18.2||-18.4||10.5||4.8|
|Mackenzie Univ Am Gwt (Unhgd) Cl||2.71||172.5||7.9||7.0||11.7||11.2||-0.5||-0.4||14.8||-1.2|
|Norrep US Class-A||3.82||7.2||7.8||8.2||22.5||6.3||-19.0||-15.6||12.4||-|
|TD U.S. Mid-Cap Growth||2.48||407.3||4.6||6.6||20.2||22.6||-27.3||-1.8||4.5||10.2|
|Worst performers to May 31|
|RBC O'Shaughnessy U.S. Growth||1.50||218.7||-12.7||11.1||16.0||-1.2||-50.0||-8.4||15.8||13.0|
|RBC U.S. Equity||2.04||2,825.2||-4.9||1.1||4.8||7.1||-26.8||-1.2||11.6||2.3|
|AGF Aggressive U.S. Growth||2.70||215.1||-4.3||10.4||17.9||3.4||-36.1||40.8||4.2||4.7|
|RBC U.S Mid-Cap Eq Currency Neutral||2.09||12.6||-3.9||8.0||19.4||23.9||-46.0||8.5||-||-|
|CIBC U.S. Small Companies||2.70||127.8||-3.6||4.4||18.5||-4.4||-23.7||-15.9||10.3||3.4|
|Investors U.S. Small Cap Class-A||2.73||37.0||-2.9||2.5||12.7||29.3||-41.9||-12.1||12.1||-3.7|
|Manulife U.S. Mid-Cap Fund||2.91||28.7||-1.5||4.1||14.9||7.0||-25.7||-11.9||2.2||8.4|
|BMO U.S. Special Equity||2.45||16.8||-1.1||6.3||15.0||5.5||-25.2||-26.4||8.1||-0.3|
|Russell 2000 ($ Cdn)||4.3||5.9||20.6||8.7||-17.9||-16.5||18.3||1.3|
|Source: Globe Investor, companies|
© 2007 The Globe and Mail. All rights reserved.
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