Monthly Mutuals Analysis
Dateline: 03/17/00
For new readers, let me explain that every month I compile a list of what I call Power Performers, Canadian mutual funds that have returned an average compound rate of return of 20% or more for each of the one year, two year, three year and five year periods. More recently I separated out the few that returned 25% in those time frames as Super Power Performers. The continuing bull market (briefly interrupted this week) has produced a surge in the number of both.
The rationale for my charts is that such funds will tend to show both consistency and growth. And to a large extent, that is the case. But as Levi Folk and Richard Webb, popularly known as The Fund Counsel, have pointed out, huge returns in the current year can skew the numbers considerably. We explore that theme today.
The number of Power Performers swelled tremendously in February, surging to 88 mutual funds from 50 in January. That is the most we have ever had since I started charting them three years ago. The previous largest number was 53 in December 1999. The lowest number was four in September 1998. The average is around 20 to 30 depending on the economic climate.
In February though, there are fully 41 Super Power Performers, with eight of them RRSP eligible. The numbers have become so unwieldy that I've divided the data into two tables - linked below:
There are several things that stand out in our lists. One is the huge number of International funds. There are 24 International Power Performers and another 13 International Super Power Performers. European and Asian funds account for most of those.
Another notable feature is the resurgence of small cap funds. 27 call themselves small cap or growth funds. And some of the others that don't have the words growth or small cap in their names are, in fact, small cap funds.
But what is really interesting is the large number of funds posting huge one year returns. And that creates a problem if using these charts to help select mutual funds. So...
If you look at the one year returns of the various funds on our lists you'll find an amazing 21 funds that have returned better than 100% in the year ending Feb. 29th. That is a huge number and represents superior performance by the funds that have produced them. But is jumping into such funds on the basis of those returns a good idea? Are those returns sustainable?
To give you an idea of how a spectacular year can skew the performance data to make a lacklustre mutual fund look good, consider the following table. It shows what the average annual returns are for funds that have returned 0% for four years and then had a spectacular year.
| Fund | 1 Year | 3 Year | 5 Year |
| One Year Wonder Fund | 100% | 25.99% | 14.87% |
| One Year Power Fund | 150% | 35.72% | 20.11% |
| One Year Super Fund | 200% | 44.23% | 24.57% |
| One Year Extraordinary Fund | 300% | 58.74% | 31.95% |
In the examples above, the One Year Extraordinary Fund has an annual average compounded return of 31.95% over five years and a whopping 58.74% over three years. A cursory look will not tell you that the fund actually had four years of zero growth followed by one year of 300% growth.
Let's compare that to the fund in our chart that actually has a 300% return for the year ending Feb. 29th, the AGF 20/20 Aggressive Growth Fund (US $). It has a five year return of 54.07% and a three year return of 83.43%. That's certainly higher than the three and five year returns expected for a fund doing zip for four years before hitting the motherlode. But we still don't have a good handle on the fund.
For all the funds returning spectacular amounts for one year we should check out the annual yearly returns. As shown below, the AGF 20/20 Aggressive Growth (US$) Fund has a pretty good track record with just one lacklustre year in 1996.
| Fund | YTD | 1999 | 1998 | 1997 | 1996 | 1995 |
| AGF 20/20 Aggressive Growth (US$) | 33.86 | 214.21 | 20.90 | 15.59 | .72 | 41.42 |
Other funds on our list are not so hot, however. Unless you're going for a short term advantage, check into the annualized track record of funds showing extraordinary one year gains.
Note too that the funds on our list have at least 20% average annual returns for five years. Those 21 are just a fraction of the 122 funds that had over 100% return for the year to Feb. 29th. And some of those have returns for three years and five years less than the one year wonders in our chart above.
In other words, funds like the Altamira Global Discovery Fund, C.I. Pacific or Cambridge China Fund which have the returns indicated below, have had significant losing years before their recent good year. The Cambridge China Fund, in fact, has lost money every year except 1999 and the current year. Do you want to risk your money with them on that basis?
| Fund | 1 Year | 3 Year | 5 Year |
| Altamira Global Discovery | 125.97 | 10.70 | 12.40 |
| C.I. Pacific | 117.51 | 6.06 | 7.69 |
| Cambridge China | 121.05 | 9.64 | 2.66 |
I wrote up two articles on assessing risk in mutual funds a while back. The articles are linked below if you want to check out the subject further.
Risky Business Part 1
Risky Business
Part 2
Comments? Suggestions? Why not post them on our Bulletin Board or email me.
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Mutual Fund Database of Key Links - Relatively new to this site, our database provides targeted links to GLOBEfund, the Fund Library, Portfolio Analytics, Sedar and, of course, the company's homepage for the over fifty mutual fund companies listed.
Recent Fund Articles - The latest fund articles from the Globe & Mail.
Mutual Fund Links - Our own collection of mutual fund links.
Mutual Fund Companies - An extensive collection of links to mutual fund company homepages.
The Fund Counsel - Levi Folk and Richard Webb are two highly respected mutual fund analysts. Their site is definitely worth checking out.
Marco's Power Performers Index Page
Marco's Power Performers to February 29, 2000
Note: The author is a financial journalist and not a professional investment advisor. Information contained here should not be construed as investment advice.