The monthly Mutual Funds Performance Charts came out again last week. Five years ago I didn't really pay much attention to them. My investments suffered accordingly. Now they are my bible.

When it comes to mutual funds, only one thing really counts - performance! So let's look at those numbers. I review the numbers as reported in The Vancouver Sun and in The Globe & Mail. Each does it a bit differently and each has some advantages that the other doesn't. I will assume that other Southam newspapers use the same charts as the Sun so readers outside B.C. can access the same material.

The two papers differ considerably in their fund categories, with the Globe breaking funds into smaller categories - e.g. splitting off Small-to-Mid-Cap Funds from Canadian Equity Funds and separating out European, Asian and Latin American Funds from the International Funds. But the significant differences for me are that the Globe adds six month performance and 2 year performance to the one month, three month, one year, three year, five year and ten year listings of the Sun. An advantage the Sun has is that it lists the rankings of the funds in each category so it is easy to pick out the top ten or twenty funds. The Globe doesn't.

In his book, The Warren Buffett Way, Robert Hagstrom, Jr. tells us that Buffett's goal is to increase the intrinsic value of his Berkshire-Hathaway company by 15% a year. He has far exceeded that number with a growth rate of over 23% a year. So I thought I would see which mutual funds have matched or surpassed Buffett's target over the last five years.

More specifically, I decided that I would look for consistency in performance as well as track record. I looked to see which funds did better than 20% a year for each of one year, two year, three year and five year performance. I also checked to see which did better than Buffett's 15% goal. The results are quite interesting. Note, of course, that any funds less than five years old cannot be on this list, no matter how good they are.

An astounding twenty-four mutual funds performed with better than 20% annual compounded return in each of the requisite time frames (See Chart). Interestingly, every single one of them was in the Canadian Equity or U.S. Equity category (12 Canadian, 12 U.S.) Only four of seventy-seven International Funds (with five year track records) did better than 20% over five years but didn't in the shorter time frames. Six of seventeen Resource funds did likewise, as did two of eighteen Dividend Funds. Of the twenty-three funds making the list, three are from Phillips, Hager and North, and two each are from AIC, Bissett, McLean Budden and Spectrum United.

Funds that did better than 15% in each of the four time frames were very numerous. 42 in Canadian Equity alone.

I also checked the funds with ten year track records to see if any met Buffett's target of 15%. Only two funds of the 335 funds with ten year track records performed better than 15% over that span. They are the AIC Advantage Fund (18.0%) and the Marathon Equity Fund (17.9%), both Canadian Equity Funds. Marathon, however, did not make my list of funds beating all time frames with either 15% or 20% performance because they have had an off year and their one year performance is only 9.8%. The Phillips, Hager & North U.S. Pooled Pension Fund came close with a 14.9% ten year performance as did Trimark Fund in the International category with 14.5%.

The best performing fund of all is AIC Advantage in a walk. Its performance is charted below:

Those are amazing numbers. Not surprisingly, AIC's managers, Jonathan Wellum and Michael Lee-Chin are Warren Buffett disciples. They attend every Berkshire Hathaway annual shareholders meeting to learn some more from their guru. Most AIC Funds hold a substantial interest in Buffett's Berkshire Hathaway company.. And their funds also invest in many of the same companies Berkshire does, such as Disney, Gillette and Coca-Cola. The key to the Advantage Fund's success, however, was the managers' recognition of the financial sector as a key growth sector now and for many years ahead. It is heavily invested in such mutual fund giants as Trimark, AGF and Mackenzie Financial.

Also not surprisingly, 60% of my personal RRSP portfolio is in AIC Advantage or its sister fund AIC Advantage II. Sizable portions of my children's education funds and my wife's spousal RRSP are similarly invested.

The AIC Advantage Fund is now closed to new investors, but the company launched a parallel sister fund, AIC Advantage II, last year which is available. Some commentators, such as Gordon Pape, urge caution on AIC Advantage because of its volatility. It has had a couple of bad down years in the past, though not within the last five years. In fact, since inception in 1987, it has had two down years, losing 18.0% in 1988 and 26.1% in 1990. Every other year has been positive. Even in volatile 1994 it gained 6.9%. (Source: The Globe & Mail's Understanding Mutual Funds)

I would rate AIC Advantage or AIC Advantage II a buy any time, even now in a rising market. (Pape advises waiting for a market bottom to buy and selling at a market top. But how do you know when you're at a market bottom or top? See my late note at end of article.) True, markets are high and the bears are growling. But when I bought in February of 1994, I hung on even though it dropped 20% in the ensuing months. It was worth hanging on to! And I have been well rewarded. My holdings in these funds are in the "never sell" category. If they were to drop 50% in value in the next few months, I would see it as an opportunity to buy more. It is a great fund. If you haven't got any, get some!

Disclaimer: The above recommendation is based on my personal experience and analysis. You are solely responsible for your investment decisions and should do your own independent analysis before following or ignoring my recommendation. I disavow any responsibility for other people's investment decisions.

Late Note: Mutual Fund manager of the Year, Ian Mottershead (Phillips, Hager & North Vintage Fund) told an audience Monday Sept. 22,1997 to keep market optimism in focus. The returns we are seeing today will moderate in the future. "Returns are much more likely to be in the order of 10 per cent rather than 20 per cent," he said.

He also noted that markets are cyclical and historically there has been a correction of 10 per cent or more every four years. We are now into the fifth year without a significant correction. Nevertheless he doesn't recommend wholesale liquidation of stocks. The timing and extent of the next correction is unknown, he noted, and history has shown that the chance of getting back in under favorable circumstances is low. Being out of the market in key periods of rising share prices is performance destroying.

He also thinks large successful companies like Coca-Cola and Gillette are over-valued.

(Sept. 23, 1997 - as reported in The Vancouver Sun.)

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