Preview of Things to Come?

The performance of mutual funds in August, of course, does not reflect the terrible events of September 11th. Nevertheless, as America and its allies embark on a war against terrorism, the markets are signaling that August's mutual fund leaders could well be September's and October's and on for months to come. The winners in August? Precious metals funds by a landslide. Fully fourteen of the Top 25 funds as reported at The Vancouver Sun's Top Funds page were precious metals funds. The next best category was July's winner - bond funds with five. The rest were three specialty funds, two real estate funds and a Canadian small cap fund.

Economic sectors taking a beating in the wake of the attacks on New York and the Pentagon include airlines, hotels, tourism, and automotive. Thriving are the defense industry, security equipment, communications and precious metals.

A hoped for patriot rally fizzled Monday when the American markets re-opened. The Dow experienced the largest single day point drop in its history - 684.81 points, though it was no where near as bad in percentage terms - 7.1%. Tuesday brought a moderate loss of 17.3 points. But Wednesday saw the bears take control early to wrest the index down 423.19 points. But news that the US was sending a strong contingent of military might to the Middle East saw the market rally almost 300 points in the last hour to finish down only 144.27 or 1.6%.

Where the market goes from here is hard to gauge. (It's always hard to gauge, even at the best of times.) But the war on terrorism could take years. Another major terrorist strike, perhaps involving chemical or biological weapons, will instill new fear and drive precious metals even higher. I believe a solid position in the metals is prudent for every investor. If you haven't got any, think about getting some. What do I mean by a solid position? At least ten percent of your portfolio and perhaps as much as twenty percent. You may want to consider a position in specialty funds as well as or instead of precious metals.

Because of the terrorist attack, it may be interesting to see which funds have done best in the last seven days (to market close on Wednesday, Sept. 19). They are the AGF Managed Futures Fund - up 15.97% for the week; StrategicNova Managed Futures Hedge Fund - up 13.46%; Royal Precious Metals - up 10.34%, Friedberg Currency Fund - up 9.56% and the Friedberg Diversified ($US) - up 9.49%. Aside from precious metals and specialty hedge funds, three telecom funds from Fidelity (all actually clones of each other) did well for the week.

The three month performance rankings have bond funds, precious metals funds and specialty funds with strong showings.

Rank	Fund	Type	1 Month	3 Month	1 Year
1	IUnits S&P/TSE Canadian Gold Index Fund	Precious Metals	8.67%	8.58%	n/a
2	Friedberg Equity-Hedge Fund	Specialty	8.56%	14.50%	36.69%
3	@rgentum Canadian L/S Equity Portfolio	Specialty	7.86%	12.38%	29.10%
4	TD Precious Metals Fund - I	Precious Metals	7.06%	1.76%	14.67%
5	Mac Universal World Precious Metals Cap Cl	Precious Metals	7.03%	-1.61%	n/a
6	AIC Global Bond Fund	Bond	6.74%	9.89%	13.34%
7	All Points U.S. Bear Fund	Specialty	6.54%	10.59%	44.03%
8	CTI Strategic Growth Fund	Cdn. Small Cap	6.10%	-12.67%	-45.78%
9	CIBC Precious Metals Fund	Precious Metals	6.05%	0.99%	17.53%
10	CIBC Canadian Real Estate Fund	Real Estate	6.01%	8.87%	20.89%

For the third month running there are no Power Performers. Not one. Not a single stock returning better than 20% per year for 1 year, 3 year and 5 year growth. But again, the Resolute Growth Fund is very, very close.

Wednesday's late rally may spell the end of the bear or it could be a dead cat bounce. My suspicions are that the economy isn't out of the woods yet. Invest for safety, with some consideration for growth in selected arenas.