WHAT ARE WE LOOKING FOR?
The S&P/TSX index reached a noteworthy point in its evolution late last month as energy stocks took over from financials as the largest sector. Lots of mainstream Canadian equity funds are underweight energy so that's hurting their returns. But are there any of these funds that have surpassed the index's large weighting in oil and gas stocks? And, if so, are these big bets paying off for investors? Let's see.
TODAY'S SEARCH
The index weighting for energy stocks at midweek was 29.1 per cent. All Canadian equity, Canadian equity focused and Canadian dividend funds with more than that are listed here, from largest weighting on down. To show how these big energy bets are paying off, we have included quartile rankings for each fund. Quartiles divide funds in a category into four groups, based on performance, with the first quartile signifying the best returns.
SO WHAT DID WE TURN UP?
Energy has been the second-best performing sector on the S&P/TSX composite over the past three years, and yet several of the funds on our list have delivered less than stellar returns. Putting something like one-third of a mainstream fund portfolio into a cyclical sector like energy adds risk. It would be nice to know that this risk is at least helping to fuel good returns.
A couple of surprising names popped up on our list. An example is IA Clarington Canadian Conservative Equity, one of the country's oldest mutual funds. The guys running this fund take a conservative approach (the name isn't just marketing bumph) and they've decided to go heavy on energy. Interesting.
Another oddity is the presence of an exchange-traded fund called the iShares CDN Value Index Fund, which focuses on stocks in the S&P/TSX composite that show signs of being on the undervalued side. The energy stocks account for a bit more than 30 per cent of this fund, but just under 26 per cent of a related fund focusing on growth stocks, or those with fast-rising revenues and profits.
Greater than 29.1% weightings in energy
| % | |||||
| Assets ($000s) | Weightings | 1 yr. | 3 yr. | ||
| Fund name | Asset class | as of Jan. 2008 | in energy | quartile | quartile |
| Middlefield Canadian Growth Class | Canadian Equity | 119,704 | 38.03 | 3 | 3 |
| Altafund Investment Corp. | Canadian Equity | 67,496 | 37.23 | 1 | 1 |
| JOV Talisman - A | Canadian Focused Equity | 26,038 | 36.52 | 1 | 3 |
| Acuity Growth and Income | Canadian Focused Equity | 347,475 | 35.97 | 4 | 3 |
| RBC Cdn Diversified Income Trust | Canadian Equity | 12,279 | 35.65 | 1 | |
| IA Clarington Canadian Growth | Canadian Equity | 48,008 | 34.44 | 4 | 3 |
| IA Clarington Cdn Conservative Eqty | Canadian Equity | 254,852 | 34.38 | 3 | 4 |
| Acuity Canadian Equity | Canadian Equity | 76,661 | 33.59 | 4 | 4 |
| Acuity Social Values Canadian Equ | Canadian Equity | 48,736 | 31.54 | 4 | 3 |
| Investors Cdn Dividend Growth A | Canadian Equity | 48,753 | 31.19 | 4 | |
| Standard Life Cdn Equity Focus - A | Canadian Equity | 3,401 | 31.13 | 1 | |
| AIC Canadian Focused Corporate Cl | Canadian Focused Equity | 55,734 | 30.75 | 4 | 3 |
| Acuity Pure Canadian Equity | Canadian Equity | 9,184 | 30.50 | ||
| iShares CDN Value Index | Canadian Dividend and Income Equity | 34,793 | 30.27 | 1 | |
| AIC Canadian Focused | Canadian Focused Equity | 488,717 | 29.88 | 4 | 3 |
| Manulife Canadian Core Fund | Canadian Equity | 260,181 | 29.47 | 1 | 1 |
| Manulife Canadian Core Class | Canadian Equity | 32,276 | 29.41 | 1 | 3 |
| TD Canadian Equity | Canadian Equity | 2,899,105 | 29.20 | 2 | 1 |
SOURCE: GLOBEFUND
This article first appeared on GlobeinvestorGOLD.com. If you'd like to profit from the insight of more than 30 financial experts and columnists, including this columnist — sign up for a free trial to GlobeinvestorGOLD.com.
© 2007 The Globe and Mail. All rights reserved.
