Dateline: 12/21/98

As expected, the market recovery has seen a resurgence in the numbers on our lists. November saw the number of Power Performers almost double from 10 to 19. The number of funds doing better than 15% for a Ten Year Period increased from 17 to 27, and the number doing better than 15% for a Fifteen Year Period went up from 4 to 5.

This month I am adding a new chart to the mix to deal with a problem that has arisen over the past six months. The problem? Canadian equity funds suck! Or rather, their performance sucks. No Canadian equity fund has made the Power Performers list since June when AIC Advantage and Acuity Pooled Canadian Equity made the list. There were seven funds on the list in May.

Readers using my charts to help pick funds for their RRSP would be severely restricted by the 20% foreign content rule and the dearth of Canadian Equity Power Performers. So I have created a new chart called Marco's RRSP Performers. This list will be of all the Canadian mutual funds that are 100% RRSP eligible and have a compounded annual return of better than 15% for each of the relevant time frames. If the number of such funds also making the Power Performers list rises above five, I may discontinue it.

Interestingly enough, the four funds making this first list are three American equity funds and one European equity fund that are RRSP eligible because they use derivatives. There still no Canadian equity funds, even with these relaxed requirements.

Looking now at our Top 25 Funds for Three Months shows the strength in Asian funds continuing. 16 of the Top 25 are Asian, most of them making respectable gains between 3.76% and 11.46% for the month. The rest are American Growth Funds and Technology Funds.

Looking at the One Month Performers as charted at the Vancouver Sun site, we see the same thing - Asian, American and Technology Funds rule! The others drool! (As the high school expression goes.) But one thing stands out in the One Month chart - namely the top two performers - Cambridge American Growth Fund and the Cambridge American Growth (US$) Fund. They each made spectacular gains for November in excess of 75%! The Cambridge funds are notorious for their volatility and inconsistency, but hey, we want to know what they did to produce these returns.

The top ten holdings for the funds are a who's who of American capitalism, but nothing unusual that would spark such a huge increase. They include such famous names as Hewlett-Packard, IBM, McDonald's, American International, Compaq, P&G, Phillip Morris, Merck, Caterpillar and and Boeing. Just checking the first three, each made respectable gains, but nothing like 75%, so I'm at a loss to explain where this jump comes from unless a lot of small holdings made huge gains.

Should you invest in this fund? Check out this chart of their returns to the end of September, October and November.

Weird eh? Personally, I would be very leery of this fund. It serves as a good example of how recent data can skew overall figures. Looking at the November figures alone would not tell you that anyone that had held this fund for five years to the end of September had actually lost money! If anyone knows how this fund made such huge gains in one month, please email me. I am curious.)

Now let's look at our portfolios.

Portfolio Review

It is one year since I started these portfolios so it's a good time to review where we are and make a few changes. For one, we will drop the current Portfolio # 2 and replace it with a new one - the RRSP Portfolio. This one will be similar to our Portfolio # 3 except that 80% of our holdings must be in 100% RRSP eligible funds. If there are not enough funds in the Power Performers list to fill it up, then we look at my new RRSP Performers list.

I considered revising the Sell criteria, particularly for Portfolio # 1 whose funds tend to be more volatile. But I decided to opt for safety and keep the "Sell if it drops 5%" rule in place. It has served us well, moving us into cash before the market downturn this summer, so why argue with success?

However, it occurred to me that Portfolio # 1 could get hung up on Bond funds for a long time if they remain flat. So I've added a new Sell criterion - namely, if a fund hasn't increased in value for six months, I will sell it and move on.

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 Clarington Pacific Fund we bought last month dropped over 5% by Friday and we sell it and buy C.I. Sector Global Technology to replace it. Our bond funds are all up for the month.

Here is our summary.

Portfolio Value at 12/18/98: $ 30,269.12 - up 21.1% since inception (12/22/97)

Portfolio # 2 (RRSP Portfolio) (Buy Strategy - 80% of funds must be 100% RRSP eligible. Fund must be a Power Performer or an RRSP Performer and must have positive Three Month and One Month figures. Sell at 5% slide)

So we can keep comparing portfolios, we take the $27,875.61 from our old Portfolio # 2 and move it into the new portfolio as follows:

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 more Power Performers qualify for purchase, so we add become fully invested by buying AGF American Growth, Ethical North American Equity and Metlife MVP U.S. Equity. We could have bought MD U.S. Equity, but since it is available to physicians only, we're opting for something a wider part of the readership camn actually buy.

Portfolio Value at 12/18/98: $ 30,219.17 - up 20.9% 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. In the final month of its first year, the aggressive portfolio moved ahead of the conservative portfolio as follows:

Here is one final chart for the end of our first year charting these portfolios. It compares our one year performance against a few other benchmarks. The Portfolios and the DJIA are to Dec. 18. The other benchmarks are to Nov. 30, 1998.

In addition, please note that our Portfolios # 1 & 3 outperformed the best Canadian Equity Fund (McElvaine Investment Trust - 19.2%), though they were bested by a number of American, International and even 3 Balanced Funds. In any event, the two portfolios did what we wanted them to do, and that was to do better than 20% for the year.

Investing (Canada) Notes

Monthly Mutuals Schedule: I have been doing the Monthly Mutuals Analysis about the third Monday of every month after the fund tables are published in the newspapers. In fact, the data is available much earlier and starting in January I will do this feature as soon as the data is available on the Internet from a combination of Globefund and The Fund Library.

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.

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.

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