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Mutual Fund News

Playing it safe pays off for BMO fund

swon@globeandmail.com

What are we looking for?

How European equity funds are faring over three years.

Given the continuing euro-zone debt crisis and slowing growth, let's see which funds have been navigating these challenges the best.

The screen

We ranked the eight best and worst performers for the three years ended July 31. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

BMO European emerging at the head of the class.

The fund posted a 9.3-per-cent annualized return over three years, while some rivals remained in the red as Europe's financial crisis continued to roil stock markets.

Drug, tobacco, food and beverage stocks helped the fund, as well as avoidance of the hard-hit banking sector. Danish insulin maker Novo Nordisk, which surged more than 100 per cent over the period, was the top stock contributor as the incidence of diabetes spread to emerging markets, said Matthew Benkendorf, a New York-based portfolio manager with Vontobel Asset Management Inc. and co-manager of BMO European.

The fund, which focuses on high-quality businesses, was 35 per cent invested in the consumer staples sector over the three years. Names like Philip Morris International, British American Tobacco, Diageo, Ambev and Nestlé helped to drive returns.

While the fund now owns a few financial stocks, it sold its European bank holdings in mid-2007 on concerns about their heavy reliance on wholesale funding (such as interbank loans and commercial notes) as opposed to more stable retail deposits, said Mr. Benkendorf. "We didn't predict the financial calamity that ensued."

Even though the fund has outperformed recently, it will tend to lag in hot markets when growth is accelerating and riskier businesses tend to do better, he said.

However, it's still possible to make money in the tough stock market because the fund owns global companies that have "durable franchises in difficult times," Mr. Benkendorf said. "A lot of these businesses have growth drivers stemming from the emerging markets, or have a widely diversified geographic footprint."

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EUROPEAN EQUITY FUNDS: WINNERS AND LOSERS FOR THREE YEARS TO JULY 31

Assetsto July 31/12Calendar year returns
FundMER(in $ mil.)3 yearsYTD2011201020092008
Leaders
BMO European2.50396.29.30%8.57%1.80%4.59%13.68%-39.45%
Trimark Europlus2.9790.46.53%5.21%-2.07%7.44%4.91%-31.14%
Invesco European Growth Class2.9621.16.11%6.21%-5.69%5.07%15.98%-35.44%
Scotia European2.6916.14.07%6.33%-4.50%2.48%10.48%-38.12%
Mackenzie Ivy European Class2.5433.03.74%1.52%0.55%0.40%7.65%-8.17%
IG Mackenzie Ivy European-A2.75244.33.64%1.53%0.65%0.05%7.48%-8.12%
TD European Growth2.8238.23.18%3.71%-6.20%1.74%11.50%-33.99%
CIBC European Equity2.64229.22.79%7.33%-7.13%-1.39%14.58%-24.33%
Laggards
AGF European Equity Class3.10186.8-13.06%-3.41%-20.50%-20.32%15.10%-36.58%
Manulife European Opportunities Fd.2.8913.0-2.10%5.57%-20.77%0.88%18.59%-41.23%
Investors European Div. Growth A2.7332.2-1.77%0.45%-9.87%-4.52%12.28%-38.41%
HSBC European-I2.4331.0-1.53%2.13%-13.01%-3.83%15.31%-36.95%
Investors European Equity Class-A2.7439.6-1.52%1.96%-11.44%-3.68%11.42%-33.50%
Renaissance European2.798.0-1.44%7.68%-14.20%-5.44%12.07%-31.40%
Investors European Equity-A2.75649.3-1.44%2.04%-11.38%-3.58%11.18%-33.56%
Dynamic European Value2.4935.6-1.26%7.86%-30.26%11.08%28.68%-38.30%
MSCI Europe ($ Cdn)1.26%2.54%-8.29%-0.96%16.18%-32.55%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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