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Weekly Insight

Wait! Think before selling

OTTAWA (GlobeinvestorGOLD) ó Some quality names have turned up on a list of funds that investors are fleeing in large numbers.

Templeton Growth, Fidelity International Portfolio, AIC Diversified Canada_ these funds are all among those with the worst net sales at mid-year. In simple terms, investors were selling these funds at a much faster rate than they were buying in.

The question here is why? Why, with the markets finally showing some life, are investors selling out of funds that are proven long-term winners?

Take AIC Diversified Canada as an example. This fund has handily outperformed the average Canadian equity fund return over the past three-year period, and its numbers are solid this year as well. From 1996 through the first half of this year, AIC Diversified Canada has been top or second quartile in all but two years.

Templeton Growth is a blue chipper that investors have been bailing out of en masse for years, not just recently. Yet this fundís results have been above average six of eight times from 1996 through the first half of 2003. As recently as 2001, it was among the top 25 per cent of funds in the global equity category as ranked by one-year gains.

Itís true that Templeton Growth has been worse than average over the past year. But has anyone checked out its recent numbers? For the three months to June 30, it made 14.1 per cent while the average global equity fund earned just 9.6 per cent. It looks as if thereís a strong chance that Templeton Growth is finding its legs again, yet investors continue to sell.

There are perfectly good motivations for getting out of funds like these now, but you have to wonder if the people doing the selling can claim that such reasons are behind their decisions.

Before you dump any fund, do an investigation to ensure youíre making the right call. An obvious first step is to see how the fund has done lately ó the last thing you want to do is sell out of a fund that is starting to break out of a slump. Next, check the long-term record of this fund. If the numbers look good and returns are consistent and not the product of one or two good years alone, then youíve got another reason to hang on as opposed to sell.

Be sure to check a fundís performance relative to its peers before you sell. Lots of people have been dumping all over Templeton Growth, not realizing that its returns have generally beaten the average global equity fund in recent years. Finally, ask yourself what better fund youíll buy into after getting out of your current holding. Thereís no point in moving unless the new fund is demonstrably better than what you have now. Also, be wary about buying a fund coming off a brilliant year. A lot of times, funds in this position have nowhere to go but down.

© 2007 The Globe and Mail. All rights reserved.

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