| Monthly Mutuals Analysis |
Dateline: 3/15/99
The number of Power Performers took a big nosedive in February as stock markets pulled back, falling to 10 funds from 28 to the end of January. This is the lowest number since October when there were also ten. The number of RRSP Performers declined to 3 from 7. What performed well in February? Read on!
While markets in general pulled back in February, there was still money to be made if you were into riskier investments. Looking at the Vancouver Sun's charts of the Top 25 Funds for the month ending Feb. 28, we find fully ten of them are funds managed by Sagit Investment Management of Vancouver. Their Cambridge Funds are known for their volatility and riskiness. Two more top funds for February are geared funds from Global Manager. These are funds for high rollers, requiring a minimum $150,000 investment. And geared, in case you didn't know, means leveraged, another high risk investment. Of the remaining 13, nine are Latin American funds, again a risky consideration.
How do we explain this dynamic? In his March edition of The Successful Investor, Pat McKeough notes that analysts specializing in small cap stocks believe that small caps and large caps play off each other. When large caps lag, small caps outperform. Some small caps may be moving into a phase where they are starting to outperform the large companies that have been driving the bull market.
But McKeough warns that small caps are traditionally a riskier venture and includes "most stock promotions and almost all outright stock frauds." If you invest in small caps, he says to look for "well established dividend paying companies that are prominent within their own small industries", such as Arbor Memorial, a cemetery company he first recommended last month at $16 and which closed at $18.25 Friday.
The Sagit Cambridge Funds all invest heavily in small cap stocks - which explains their astounding performance recently.
The Cambridge Funds
We first noted the Cambridge funds here three months ago when the Cambridge American Growth Fund had a spectacular leap and was the year's best performing fund with over 100% return. For February, the top eight funds were all from Sagit, as were the 18th and 19th. Nine are Cambridge funds and one is from their "conservative" line of Trans-Canada funds. And on the Three Month Performance chart, eight of the Top 25 are Sagit funds.
Although they call their Trans-Canada funds conservative, they invest in much the same sort of stock as the Cambridge funds with a lesser weighting in small caps and more blue chips. But as you can see from the table below, their long term track records are checkered at best. The only one with a seemingly reasonable track record, the Cambridge American Growth Fund, is heavily skewed by recent outstanding performance.
| Fund | 1 Month | 3 Month | 1 Year | 3 Year | 5 Year |
|---|---|---|---|---|---|
| Cambridge China Fund U$ | 25.15% | 24.41% | -17.06% | - | - |
| Cambridge China Fund | 25.00% | 22.09% | -12.26% | -15.40% | - |
| Cambridge Global Fund U$ | 24.90% | 54.15% | 40.44% | - | - |
| Cambridge Global Fund | 24.87% | 51.91% | 49.06% | -11.19% | -11.31% |
| Cambridge Pacific Fund U$ | 20.20% | 22.68% | -20.13% | - | - |
| Cambridge Pacific Fund | 20.00% | 20.81% | -15.09% | -27.08% | -21.20% |
| Trans-Canada Value Fund | 15.10% | 45.83% | 7.88% | 7.87% | 2.44% |
| Cambridge Precious Metals Fund | 13.28% | 19.84% | -50.51% | - | - |
| Cambridge American Growth Fund U$ | 6.49% | 21.17% | 98.83% | - | - |
| Cambridge American Growth Fund | 6.28% | 19.18% | 110.48% | 37.75% | 17.71% |
Following the links in the chart above will take you to the individual pages for each fund at Sagit's website. What is interesting to note is the top ten holdings in each fund. Most funds will have no more than 10% of the fund invested in any one stock. Not so at Sagit. Click the link below for the top holdings by percentage for each of the above funds (except the US$ denominated funds.) The information on Sagit's pages are from Dec. 31 for all funds except Cambridge Global which is from Sept. 30, 1998. Only holdings which exceed 10% in any fund are listed. The chart will pop up in a separate window.
As you can see, two to four stocks make up more than 65% of each Cambridge fund and even in the conservative Trans-Canada Value Fund, one stock, National Challenge Systems, makes up over 28% of the fund. This company, in fact, has had a terrific run-up from $1.20 at the beginning of December to peak at $7.05 just recently. It's closed Friday at $6.10. You'll find similar scenarios with many of the other stocks in Sagit's top holdings.
In an article in the Globe & Mail on Feb. 18, Andrew Allentuck took a closer look at the the Cambridge American Growth Fund and its manager, Raoul Tsakok. Mr. Tsakok attributes the fund's spectacular success to a switch from 100% small caps to 70% large caps, including such winners as IBM, Compaq, McDonald's, American International and Merck. While that may have been behind some of the fund's performace, the 68.5% weighting in three stocks, Aquaplan, Dragon Pharmaceuticals and National Challenge Systems at the end of December indicate a different story.
Sagit's funds are certainly interesting, but not for the faint-hearted. In the Globe article Gordon Pape cautions that any Cambridge investment should be considered speculative. "The home runs will come, and if you can live with the slumps, you might want to have some money in this company when the periodic breakouts occur." But beware!
Starting this month I am putting the Portfolio Review on a separate page. Click the link below to get there.
Up until now I have been writing longer features once a week, posted on the Net every Monday. I am contemplating following my colleague Mike Griffis at the MiningCo Stocks site in providing a daily column (Monday - Friday). If I did that, the features would be much shorter than they are now. What I'd like to know from you, my readers, is what your preferences are. So please respond to the Quizlet below and give me some feedback on this. Or email me with your thoughts.
I'm looking at a number of possibilities for going with a daily feature. One is to offer comentary on daily news with appropriate links to further commentary and related links. Another is to have themed weeks. Say, for example, I did a week on Collectibles (a subject I have not covered up to now). Monday would cover coin collecting, Tuesday stamp collecting, Wednesday antiques, Thursday plates and figurines, and Friday everything else.
Another possibility is to have certain days of the week designated to certain topics - for example, Tuesdays and Thursdays would cover a stock in the news, Monday, Wednesday and Friday would cover news events.
In any of these scenarios I would occasionally break with the routine and do something else, such as a book review. I'd still do Monthly Mutuals Analysis but would break it into two parts posted on Mondays and Tuesdays.
So here's the Quizlet.
Marco's Power Performers to Feb. 28, 1999
Marco's RRSP Performers to Feb. 28, 1999
Top 25 Three Month Performers to Feb 28, 1999
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. The author may hold interests in a number of the funds mentioned in this article.
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