Dateline: 5/18/98 - Updated: 5/19/98, 5/21/98

This Month's Analysis

The number of Power Performers continued to increase this past month. To the end of April there were an astounding 52 Canadian mutual funds that averaged over 20% annual compound returns for each of the 1 year, 2 year, 3 year and 5 year periods! And again four of those are Super Power Performers with returns of over 25% in each of those time frames.

Looking at the Top 25 Performers for a 3 Month Period, we note that the Euro funds are still riding high. Fully seven of the Top 25 are European, either country specific like Global Manager's UK Geared and German Geared funds, or general European funds. Telecom and Science and Technology funds are also doing well with 3 Telecom and 2 Sci & Tech funds represented.

Some Asian funds are in the Top 25, but their One Month numbers are weak and they may be at the end of their bounce back. The exception is the 20/20 India fund which had an impressive 11.9% growth in April. But does it have legs? Personally, I'd watch it for another month before considering putting any money into it.

If I were looking to add to my portfolio at this time, I'd go for Dynamic Europe, AGF European Growth, or Universal European Opportunities. (In fact, I just bought some of the AGF European Growth a few weeks ago.)

Before going on to a look at how our portfolios are doing, an update on Lowrisk.com, featured in last week's article. You'll remember that Lowrisk uses a proprietary computer model to analyse current market conditions. Its inputs consist of things like the Dow Jones action, number of advancers versus number of decliners, interest rates and so on. This data generates a number between 0 and 20. The higher the number, the more bullish the market.

You'll also recall that they had four portfolio strategies based on the model. Their Disaster Avoidance Strategy has people move completely out of stocks into Money Market Funds if the number drops to 2. Their Graduated Strategy, as the name implies, gradually moves stocks into Money Markets as the indicator declines.

The Walker Market Letter is sent out to subscribers (it's free) by email immediately if there is a change. A Flash Update was issued on May 13 announcing that the Signal Strength for the Model had dropped from 12 to 10 at market close that day. That meant that people following the Graduated Stratgey should move an additional 25% of their portfolio from stocks to money markets giving it a new mix of 50% stocks, 50% money markets.

More significantly, this is the fourth such Flash Update since April 24th. The Signal Strength indicator has dropped from 18 to 10 since then. If you are at all concerned about a possible downturn in the market, you may want to consider using the Lowrisk Market Allocation Model as a guide. Certainly their track record as shown on their pages is impressive. See last week's article for a summary for all four strategies or visit Lowrisk's website.

Flash Update: After markets closed on Monday May 18, the Walker Market Letter issued another flash update, its fifth since April 24. The Signal Strength indicator on their Market Allocation Model has dropped again to 8. It's worth noting what Jeff Walker said in his last update about the reasons for the drop in signal strength.

"The primary reason is that the stock market is just not looking very healthy. The market advance has really thinned out, being led by the Dow and not much else. Today's market (May 13) is a perfect example. The Dow was up 50 points and set a new all time closing high, yet there were more declining issues than advancing issues. NONE of the other indexes hit new highs; the SP500 is still 1.2% away its closing high, the NASDAQ Composite is 2.6% away, and the Russell 2000 is 2.8% away. And both the Dow Transports and Dow Utilities are in downtrends, well off their highs. The market might well have one more spurt left in it, but this bull market is looking very tired."

Although I have been a buy and hold investor up to now, I am seriously contemplating putting some of my holdings into Money Markets at this time. I'll certainly be keeping a close eye on the Walker Market Letter and Lowrisk.com.

Now on to our portfolio review.

Portfolio Review

Our three portfolios all gained slightly this past month. Since all are fully invested and none had funds that dropped 5% during the month, we are holding all our positions. The charts, then, only show the name of the investment, the number of shares and the current price.

Portfolio # 1 (Buy Strategy - Fund must be in the Top 25 Performers for a Three Month period and the One Month performance should not be negative nor excessive compared to the Three Month. Sell on 5% slide.)

Portfolio Value at 5/15/98: $ 29,665.57 - up 18.7% since inception (12/22/97)

Portfolio # 2 (Buy Strategy - Same as Portfolio # 1 plus the fund must have a better than 15% performance for the One Year, Three Year and Five Year periods. Sell at 5% slide)

Portfolio Value at 5/15/98: $ 27,635.56 - up 10.5% since inception (12/22/97)

Portfolio # 3 (Buy Strategy - Fund must be a Power Performer and it must have positive Three Month and One Month figures. Sell on 5% slide.)

Portfolio Value at 5/15/98: $ 28,325.13 - up 13.3% since inception (12/22/97)

Controls: (2 Funds purchased to buy and hold as benchmarks for our portfolios.)

The three portfolios can be characterized as aggressive, conservatively aggressive and conservative. Aggressive Portfolio # 1 regained its lead over the benchmark AIC Advantage 2 which lost ground over the month. The conservative Portfolio # 3 follows that, then Portfolio # 2 and conservative benchmark Trimark Fund brings up the rear. Here is a chart of the standings.

Note that Portfolio # 3, based on my Power Performers, is gaining ground on the leaders. This portfolio was largely in cash for the initial two months as not enough funds filled the buy criteria. Now that it is fully invested, it is outperforming the others having come from the back of the pack to # 3 and moving up smartly.

Links to Sites Mentioned This Week

Lowrisk.com

Marco's Power Performers to April 30, 1998

Top 25 Three Month Performers to April 30, 1998

Funds Performing Better Than 15% Annual Compounded Rate Over 15 Years

Funds Performing Better Than 15% Annual Compounded Rate Over 10 Years

Marco's Power Performers Index Page

Disclaimer: As with all my columns here, I should re-iterate a precaution. I am not a professional financial advisor. I am a financial journalist and editorialist. The views in these columns are my personal opinions.

American Readers: Looking for a broker who can sell you Canadian stocks? One of my brokers is licensed to sell securities to Americans in 26 states. She works for Canaccord Capital which is an excellent company with a superb research department. They are particularly knowledgeable on resource issues. Send me a note if you want to get in touch with her.

Investing (Canada) Notes:

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