Dateline: 11/23/98

After being reduced to only four funds at the end of September, our Power Performers took a rebound in October to ten funds as markets began to recover. By October 31st, such analysts as Carlton and Timothy Lutts (The Cabot Market Letter) and Jeff Walker (Walker Market Letter) were calling it a definitive turnaround and a resurgent bull market. And it showed in the numbers.

At the end of July there were fully 28 Power Performers. Of the ten this month, four were the ones that had managed to weather the downturn despite substantial losses in August. Four more had been in the July list and the other two had been on the June list. All showed a three month return varying between -3.5% and +3.5%. A buy and hold strategy would have worked well with any of them.

But while these funds managed to hold their own, others were contra-cyclical and made tremendous gains during the last three months. In fact, looking at the top performers for various different time frames shows some interesting results.

A Good Case for Balance

Although I don't post them here along with my other charts, I regularly check out the Top 25 Performers for one month as well. Whereas the funds on my Power Performers list demonstrate some semblance of stability - it's common to have a fund stay on the Power Performers list for several months in a row and some even longer than a year - the funds on the one month list changes constantly.

One month it can be dominated by American equity funds, another month precious metals, and another month European funds. Often it is a jumbled mix. But basically the one month chart tells you which funds are hot right now. By the time it appears, of course, the horse may be out of the barn and moving too fast for you to successfully jump on and ride. Or it may be getting winded and be starting to slow down. This is why I use three month performance as a guide to buying funds in my Portfolio # 1 strategy.

But looking at the one month charts reveals the importance of balance in a portfolio. When equities were nose-diving over the last three months, precious metals, international bond funds and Asian funds were all performing well. For the month of October, Asian funds dominated hugely with 21 of the top 25 funds. The Clarington Asia Pacific Fund topped the list with a one month return of 38.29%. Wow! Asian flu has turned into Asians flew!

If we use Globefund's handy Fund Filter to check out the top performing funds over various time frames, we see that each is dominated by different sectors. Fund Filter lets you analyze the universe of around 2100 Canadian mutual funds by choosing a variety of parameters.

Initially I wanted to see how many funds had recovered from the market downturn completely by filtering the three month time frame for funds doing better than 0%. This showed there were 641 funds at least breaking even since July 31. Since I didn't want to look through such a large list I decided to filter for better performers and came up with some interesting results.

139 Funds did better than 5% return. 51 did better than 10% and 22 did better than 15%. The ones topping 10% were dominated by three groups - bonds, resources (including precious metals) and Asian. The ones besting 15% were dominated by Asian funds. 17 of the 22 funds were Asian. (Please note that the Globefund charts linked here will change shortly after Dec. 1 and will no longer be relevant to this article.)

Filtering the 6 month period again gives us 22 funds doing better than 15%. 16 of the 22 funds are International bond funds. The rest are two pharmaceutical funds, two U.S. equity funds, one telecom and one science and technology.

There are too many funds topping 15% for the one year period to digest (246 of them), so I filtered for funds topping 25%. This produced an astounding 84 funds. Three distinct groups dominated here - American equities, European equities and Sectoral funds. The sector funds were a mishmash of health related funds, telecom funds and general science and tech funds, with health care predominating.

As the old saying goes, "every dog has its day", and so it seems, every asset group has its day! Over one year the Euros were top dog. Over six months International bond funds were barking up a storm. And over the short haul - three months - the Asian pooches were showing their colors with a strong showing from resources and precious metals as well.

Now let's take a look at our Portfolios.

Portfolio Review

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.)

The lustre is starting to wear off our bond funds in this portfolio, and one of them, the Universal World Tactical Bond Fund, dropped 5% from its previous high and was sold off. Looking at the Three Month Chart for a replacement, we are tempted by the Clarington Asia Pacific Fund but wonder whether its spectacular one month increase of 38.92% violates our rule about excessive One Month performance relative to the Three Month, which was 59.16%.

Going through the list, nearly all the other Asian funds had One Month performance greater than the Three Month, clearly outside our parameters. The only other fund that appeals here is the C.I. Sector Global Resource Shares. Both have gained since month end, so both qualify. If we were to sell two funds, we would buy both. We opt for the Clarington Fund.

Here is our summary.

Portfolio Value at 11/20/98: $ 29,906.05- up 19.6% 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)

This more conservative portfolio found no funds fitting our "buy" criteria. It remains 100% in cash.

Portfolio Value at 11/20/98: $ 27,875.61 - up 11.5% 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.)

This month two more Power Performers qualify for purchase, so we add Investors U.S. Growth and IRIS U.S. Equity to our positions. Summary below.

Portfolio Value at 11/20/98: $ 30,180.55 - up 20.7% 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. As bond funds lost ground recently, Portfolio # 3 has once again shot to the top of our list. The benchmark funds have made significant gains and are once again on the plus side of the ledger, greatly outperforming our managed portfolios for the month, though underperforming since inception.

Investing (Canada) Notes

Magazine Write-up: The November issue of Profit Magazine has an article called "Surf-it-yourself Investing" which mentions yours truly and this website extensively. Described as The Magazine for Canadian Entrepreneurs, it is particularly useful for those who own or are contemplating buying their own business. One regular feature of interest to investors is the Profit 100, which looks at the fastest growing businesses in Canada. Check it out.

The Pundit Report:: Have you checked out The Pundit Report? This new item features continually updated overviews of what various Canadian, American and International commentators are saying about the economy and investing. I add to this intra-week so you may want to check it regularly for updates. Of course, if any of the pundits we mention interest you, there are links to their webpages so you can subscribe to their newsletters or check their views online and get the complete picture.

My apologies to those of you who checked The Pundit Report earlier this week and were confused by my summary of Brent Woyat's report from Canaccord Capital. I had written "Woyat reports that after two years of slumping prices, the situation is now changing." That should have read "slumping lumber prices", a rather significant difference. I changed it after I noticed it on Wednesday.

Video Store: We've added an online Video Store to complement these pages. The movies selected are supposed to have some sort of connection to the topic, but honestly, how many movies do you know about investing, let alone investing in Canada? So I am being creative and finding excuses to just list movies I've seen and liked. Gone With the Wind, for example, is about a woman who invests in the lumber business after the Civil War. Speaking of which, we watched it last night and if you haven't seen it, please do. It is a classic.

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. The author holds interests in a number of the funds mentioned in this article.

Previous Features