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Equity funds catch momentum wave

What are we looking for?

Canadian equity funds that are taking advantage of the current market momentum.

The screen

We ranked the top 15 performers in the fund category for the three months to Sept. 30. U.S. dollar, segregated and duplicate versions of funds were excluded. We also left out funds with a minimum investment over $25,000, those closed to new investors and those that invest primarily in other mutual funds.

What did we find?

The best performing fund in the screen was Redwood Equity Growth Class, gaining 11.9 per cent.

This fund doesn't follow the index, said portfolio manager Bruce Campbell. The Redwood Equity Growth Class fund is managed through Mr. Campbell's firm, StoneCastle Investment Management Inc.

Instead, the Redwood fund invests across a variety of sectors and looks for companies with accelerating earnings growth. Right now, for example, about 15 per cent of the portfolio is allocated toward technology companies, such as communication software firm Redknee Solutions Inc. and cloud-based software provider Solium Capital Inc.

Back in June, Mr. Campbell noted in a commentary on Redwood's website that the S&P/TSX composite index appeared to be well positioned for gains in the next year or two. Indeed, the Canadian market has been strong in recent months. The S&P/TSX edged up about 4.5 per cent in October - marking the fourth month of gains in a row.

Financial companies have been a big driver of this strength, with many banks' stocks climbing as they generate record profits. The Canadian energy sector has also performed better in recent months, and materials investments such as chemicals and base metals have improved, Mr. Campbell said in an interview.

Canadian equity funds have benefited from this upward momentum, and all of the funds in the screen exceeded the benchmark S&P/TSX total return index's 6.3-per-cent gain in the period.

Mr. Campbell is confident that the momentum can continue. "We think that there's still a fair bit of room to go - the financials are all hitting new highs."

But investors should expect the Redwood fund's investments to change frequently. The fund doesn't have a buy-and-hold strategy, taking positions in companies for between six and 12 months, on average.

"The law of large numbers means that you can't continue to grow your earnings at an exponential rate," Mr. Campbell said.


% return (Sept. 30)% returnAssets
Redwood Equity Growth Class11.9%18.2%4.9%-0.7%-18.5%22.4%3.2810.9
iShares S&P/TSX Venture Index ETFXVX-T9.4%-24.9%-6.0%0.892.2
Dynamic Aurion Canadian Equity Cl-A9.4%11.3%-0.6%-0.7%-17.8%20.2%2.675.1
RBC O'Shaughnessy All-Can Equity9.0%20.8%10.6%9.3%9.3%-5.7%24.0%27.9%1.810.3
EdgePoint Canadian Portfolio FE8.8%21.8%8.9%8.9%-7.8%16.6%50.2%2.24552.7
BonaVista Canadian Equity Value-D8.7%18.1%6.7%6.1%14.2%-13.5%15.0%44.2%1.255.5
Desjardins Canadian Equity Value8.5%15.5%5.4%5.5%6.7%9.5%-14.8%18.9%36.3%2.41783.1
Norrep All Cap Quant Class-A8.3%13.5%4.0%2.8%3.2%-13.0%15.3%30.8%2.9814.6
BMO Canadian Large Cap Equity Series A8.2%7.4%2.48959.5
DFA Canadian Vector Equity Cl A8.0%2.3%4.7%1.55115.6
First Asset Mstar Canada Momentum Idx ETFWXM-T7.9%17.9%0.6051.2
Caldwell Canadian Value Momentum Fund7.7%21.6%15.8%1.5010.0
First Asset Mstar Canada Value Idx ETFFXM-T7.7%28.9%0.6066.9
IA Clarington Inhance Cdn Equity SRI Cl-A7.7%11.9%4.5%9.8%-12.1%12.8%2.597.7
Integra Canadian Value Growth7.5%8.7%2.7%4.0%6.8%7.7%-15.6%16.8%36.7%1.2390.4
S&P/TSX Total Return6.2%7.1%4.1%4.8%8.4%7.2%-8.7%17.6%35.1%
S&P 500 Composite Total Return Idx($Cdn)0.4%28.0%17.2%8.3%4.0%15.7%7.3%12.2%13.7%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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