THE BEST & WORST MUTUAL FUND
MOST DOMESTIC STOCK FUNDS DID WELL, BUT TECHNOLOGY WAS THE REAL WINNER
For as long as most investors can remember, making moneyin the stock market has meant following three simple rules. First, stay diversified, avoiding the temptation to put all your eggs in one basket. Second, look for stocks that are undervalued relative to their revenues and earnings potential. And third, invest for the long term—don’t get caught up in investment crazes. Remember Aesop’s fable of the tortoise and the hare: slow and steady wins the race.
That’s the way it’s supposed to be, but after a year like 1999, Canada’s five million mutual fund investors can be forgiven for doubting poor Aesop’s competence as an investment adviser. More so than in most years, a single factor determined whether a fund’s performance was whitehot, mediocre or dreadful. Funds with heavy weightings in technology stocks, particularly companies whose share prices are benefiting from the Internet boom, reported above-average returns—in some cases well into the triple digits. Almost everything else trailed the market or lost money,
proof that tortoises don’t always cross the finish line first.
In other ways, too, 1999 defied conventional wisdom. At the start of the year, many financial advisers were telling their clients to shift some of their money from equities to bonds. Big mistake: most bond funds lost money in 1999. There was also widespread pessimism about the oudook for the Japanese economy, yet Japanese funds—along with many emergingmarkets funds—delivered spectacular returns. And the old rule of thumb that small companies generally outperform their larger counterparts turned out not to apply to last year’s market. In the eyes of many investors, bigger was unquestionably better, even if by every traditional measure the shares of many large companies were already seriously overpriced.
In some ways, the biggest surprise was just how good a year it turned out to be for most domestic equity funds. For the first time in four years, the benchmark Toronto Stock Exchange 300 composite index outshone two of the key U.S. indexes, the Dow Jones industrial average and the Standard & Poor’s 500 index. For holders of diversified Canadian equity mutual funds—the bread and butter of most investors’ port-
What the rankings mean
THREE-YEAR ANNUAL COMPOUND RETURN:
Annual compound return over three years to Dec. 31,1999.
RISK-ADJUSTED THREE-YEAR RETURN:
A ratio that measures return against the degree of risk. The number is arrived at by subtracting the amount of money an investor would have made over three years by investing in 90-day Treasury
bills (which are risk-free) from the fund’s three-year compound return. The result is then divided by its standard deviation—a measure of volatility. The higher the final number, the greater the return for the amount of risk.
AVERAGE ONE-TO FIVE-YEAR ANNUAL RETURN:
The average of the returns in each of the past five years. Shows which funds performed best in the medium term.
folios—the result was an average 1999 gain of 20.9 per cent, a dramatic turnaround from the 3.1-per-cent loss recorded in 1998. U.S. equity funds, in comparison, returned 12.5 per cent in Canadian dollar terms in 1999, down from the previous year’s gain of 23.7 per cent. (As with any mutual fund that invests outside Canada, the performance of U.S. equity funds is affected by changes in the exchange rate. Last year, the U.S. dollar fell slightly in Canadian terms, so the returns from U.S. equity funds were similarly reduced.)
The bottom line? It was an excellent year to be invested in most Canadian equity mutual funds, particularly funds that had at least some exposure to technology. The irony is that many investors chose to remain on the sidelines last year, presumably frightened off by the global market meltdown in 1998 or predictions of market chaos resulting from year 2000 computer problems. Overall, net mutual fund sales, after redemptions, plummeted by 50 per cent to $17.7 billion in 1999 from $35.4 billion in 1998, according to the Investment Funds Institute of Canada, an industry trade association.
Beyond the ever-present concern about market volatility, industry experts can only guess at the reasons why Canadians are investing less new money in mutual funds than
Funds that invest in shares of Canadian companies (3 years: 132 funds;
5 years: 89 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN Transamerica Growsafe Cdn. Equity 30.6 Acuity Pooled Cdn. Equity 29.4 AIM Canadian Premier 24.8 Universal Future 21.7 Investors Summa 20.8 AIM Canada Growth Class 20.6 Valorem Demographic Trends* 19.7 McElvaine Investment Trust 19.3 Chou RRSP* 18.6 Fidelity True North 17.4 Ml University Avenue Canadian -5.1 Vistafund Capital Gains Growth 1 -5.5 Vistafund Capital Gains Growth 2 -6.3 COTE 100 Amérique -6.6 Pacific Total Return -7.1 TOP 10 RISK-ADJUSTED 3-YEAR RETURN McElvaine Investment Trust 5.26 Chou RRSP* 4.04 Acuity Pooled Cdn. Equity 3.96 Value Contrarian Cdn. Equity 3.52 Investors Summa 3.28 Transamerica Growsafe Cdn. Equity 3.28 AIM Canadian Premier 3.25 Universal Future 3.2 Valorem Demographic Trends* 2.93 Kingwest Avenue Portfolio 2.85 n University Avenue Canadian -1.79 Vistafund Capital Gains Growth 1 -1.85 COTE 100 Amérique -1.88 Vistafund Capital Gains Growth 2 -1.99 Pacific Total Return 4.13 Transamerica Growsafe Cdn. Equity 30.5 Acuity Pooled Cdn. Equity 29.9 AIC Diversified Canada 27.5 AIC Advantage 26.7 AIM Canadian Premier 22.2 Investors Summa 21.5 Chou RRSP* 20.7 Universal Future 20.7 Phillips, Hager & North Vintage 19.9 Tradex Equity Fund Ltd. 19.4 Mackenzie Sentinel Cdn. Equity 5.3 Industrial Growth 3.7 Vistafund Capital Gains Growth 1 2.3 University Avenue Canadian 1.6 Vistafund Capital Gains Growth 2 1.6 *Not available in all provinces
Canadian investors pulled $1.3 billion out of domestic stock funds last year, just as the market was picking up
in the boom years of 1997 and 1998. One theory is that the relative ease and growing popularity of online stock trading, combined with the stellar gains racked up by high-profile stocks such as Canada’s Nortel Networks Corp., JDS Uniphase Corp. and Celestica Inc., have drawn investors away from mutual funds. Another possible explanation is that Canadians have been on a national shopping spree— consumer spending rose 4.1 per cent in the 12 months ending Sept. 30—and simply don’t have as much money left for their RRSPs. “Canadians by and large don’t budget for their investing,” says Dan Richards, president of Toronto-based Marketing Solutions, a consulting firm. “It tends to be based on what’s left over.”
The most likely reason, however, is that many mutual fund holders have been guilty of a classic investment mistake: judging the condition of the road ahead by looking into a rearview mirror. Consider, for example, what has happened to sales of Canadian equity funds in the recent past. After two years of solid returns in 1996 and 1997, Canadian investors sank $8.1 billion into domestic stock funds in 1998—just in time for that year’s market drop. Last year, investors pulled $1.3 billion out of those funds, yet the market itself was roaring back to record levels.
One way to get around that problem, of course, is to avoid making investment decisions based on a fund’s performance in a single year. That’s the philosophy behind Macleans annual fund rankings, which are compiled on behalf of the magazine
by BellCharts Inc., an independent, Toronto-based investment research firm. The results, displayed in the accompanying charts, show the best and worst funds in eight popular categories based on three different measures: annual compound return over three years; risk-adjusted return over three years; and average annual return in each of the past five years.
The tables show returns after deducting all management
CANADIAN LARGE CAP Funds that invest in large Canadian corporations (3 years: 58 funds; 5 years: 48 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN Manulife Cabot Canadian Equity 21.8 Altamira Capital Growth 21.3 Manulife Cabot Blue Chip 21.1 Royal & SunAlliance Equity 18 Perigee Canadian Value Equity* 17 FMOQ Canadian Equity 16 Atlas Canadian Large Cap Value 15.9 BNP (Canada) Equity 15.9 CDA Common Stock (Altamira) 15.8 HSBC Equity* 15 Mi IG Beutel Goodman Cdn. Equity 3.3 Rothschild Select GS Cdn. Equity 1.6 Great West Life Larger Company Equity B (M) 0.8 Great West Life Larger Company Equity A (M) 0.6 NAL-Investor Cdn. Equity -0.4
TOP 10 RISK-ADJUSTED 3-YEAR RETURN Manulife Cabot Blue Chip 3.3 Manulife Cabot Canadian Equity 2.83 Altamira Capital Growth 2.71 Royal & SunAlliance Equity 2.67 Perigee Canadian Value Equity* 2.19 FMOQ Canadian Equity 2.16 BNP (Canada) Equity 2.12 First Canadian Equity 2.08 Spectrum United Cdn. Stock 2.07 CDA Common Stock (Altamira) 2.05 MSB IG Beutel Goodman Cdn. Equity -0.2 Rothschild Select GS Cdn. Equity -0.6 Great West Life Larger Company Eq B (M) -0.71 Great West Life Larger Company Eq A (M) -0.76 NAL-Investor Cdn. Equity -0.92
TOP 10 AVERAGE 1-5 YEAR ANNUAL RETURN Manulife Cabot Canadian Equity 22.5 Manulife Cabot Blue Chip 20.9 Perigee Canadian Value Equity* 18.9 Royal & SunAlliance Equity 18.9 BNP (Canada) Equity 18.5 First Canadian Equity 17.9 Altamira Capital Growth 17.6 McLean Budden Cdn. Equity Growth 17.6 HSBC Equity* 17 Empire Equity Growth 3 16.6 MB NAL-Investor Cdn. Equity 9.3 Dynamic Fund of Canada 8.8 Vistafund Equity 1 8.3 Industrial Horizon 7.8 Vistafund Equity 2 7.5 *Not available in all provinces
fees (but not sales commissions, if applicable) and are based on total returns, including dividends, to Dec. 31, 1999. Funds that have existed for less than three years were not included. And with the exception of funds that invest in the fast-growing area of science and technology, the rankings do not consider so-called specialty or sector funds, which tend to be more volatile than other funds and therefore suitable mainly for experienced investors.
The report also includes an exclusive listing of “best-of-class” mutual funds based on a more detailed rating system that takes into account past performance, volatility and consistency over three years. The funds that score highest according to this approach are not always the ones that have earned the highest returns. Instead, they have tended to produce returns sig-
nificantly above the average on a consistent basis in the recent past given the amount of risk they took with unitholders’ money.
Regardless of which ranking method investors choose, experts caution that a fund’s history is no guarantee of future performance. By definition, a fund manager who produces returns above the market average must be doing something that his or her peers are not—but this year’s formula for success could easily turn into next year’s recipe for disaster. Before selecting any individual fund, investors should first consider their overall objectives in the context of a detailed financial plan. Among other things, that means deciding how much of the portfolio will go into domestic or foreign stocks, bonds and money-market funds or other cash
equivalents. Stock-based (“equity”) funds are normally only suitable for people who intend to leave their money invested for four or five years—enough time, in most cases, to make back any losses in the event of a market downturn.
Of course, sticking by that advice is easier said than done. Investors frequendy feel the urge to rotate in and out of various asset classes in pursuit of higher returns, a strategy that can be cosdy. Mike Cogan, a 47-year-old computer consultant in Toronto, learned that the hard way last year. At the beginning of 1999, he bailed out of his precious metals and Asia-Pacific funds because they were doing poorly. In the following months, the precious metals fund continued to slide, finishing the year with a loss of 5.6 per cent. The Asia-Pacific fund, on the other hand, took off like a rocket, reversing the previous year’s losses. Its one-year return to Dec. 31 was 102.5 per cent, impressive even by the standards of the supercharged Asia-Pacific category. “That's the heartbreaking thing about investing,” Cogan says. “You just never know when to let go or hang on.”
Although switching from fund to fund is hazardous at the best of times, 1999 was a year that for the most part brought big rewards to risktakers. Gary Comeau, 36, a recreation coordinator at a nursing home in Dartmouth, N.S., has been investing in mutual funds for four years, enjoying an average annual return of about 25 per cent. Last year was his best yet with a gain of about 50 per cent, thanks mainly to a well-timed move into the AGF 20/20 Aggressive Growth Fund, which mainly targets smalland medium-sized U.S. companies. Propelled by its 74-per-cent weighting in technology—its top holdings are Qualcomm Inc., the San Diego-based maker of digital wireless communications products, and JDS Uniphase, a leader in fibre-optic technology—the fund gained 195 per cent in 1999, tops among U.S. smalland midcap funds. “My timing was good—I didn’t take anything out,” Comeau says. Fie adds that he intends to stick with aggressive
CANADIAN SMALL CAP
Funds that invest in shares of small and midsize Canadian firms (3 years:
69 funds; 5 years: 52 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN CDA Special Equity (KBSH) 38.7 YMG Emerging Companies* * 32.2 YMG Growth 23.5 Clarica MVP Growth 19.2 Fidelity Cdn. Growth Company 18.3 Ontario Teachers Growth* 17.4 GBC Canadian Growth 16.4 Strategic Value Cdn. Small Companies 15 Saxon Small Cap 14.6 Cundiil Canadian Security A 14.3 BOTTOM 5 Marathon Equity Atlas Canadian Emerging Growth -15.6 Industrial Equity Fund Ltd. -17.8 Cambridge Special Equity -22.8 Cambridge Growth -30.4 TOP 10 RISK-ADJUSTED 3-YEAR RETURN CDA Special Equity (KBSH) 4.94 Fidelity Cdn. Growth Company 2.82 Clarica MVP Growth 2.81 Cundiil Canadian Security A 2.78 YMG Emerging Companies* 2.69 Ontario Teachers Growth* 2.45 YMG Growth 2.2 Saxon Small Cap 2.15 GBC Canadian Growth 2.12 Strategic Value Cdn. Small Companies 2.01 rmum BPI Canadian Small Companies -2.58 Cambridge Special Equity -2.65 Atlas Canadian Emerging Growth -3.26 Cambridge Growth -3.34 Industrial Equity Fund Ltd. -3.73 YMG Growth 22.5 Fidelity Cdn. Growth Company 21.6 Talvest Millennium Next Generation 21.5 Clarica MVP Growth 21.4 GBC Canadian Growth 20.5 Concordia Special Growth 19.6 Multiple Opportunities* 19 Ontario Teachers Growth* 18.6 Guardian Enterprise Classic 18 AGF 20/20 RSP Aggressive Equity 16.6 ME All-Canadian Capital 0.4 All-Canadian Compound 0.2 Cambridge Special Equity -6 Industrial Equity Fund Ltd. -6.4 Cambridge Growth -16.1 * Not available in all provinces
Some industry veterans are now wondering whether the
interest in foreign investing has gotten out of hand
growth equity funds this year, primarily concentrating on the high-tech field and small-cap stocks. About 30 per cent of his RRSP portfolio is invested in Canada, with the rest roughly split between the United States and Asia.
If Comeaus decision to devote a large part of his portfolio to technology is typical of a growing number of Canadian investors, so is his bias towards foreign rather than domestic funds. What has made it possible is the proliferation of socalled foreign “clone” funds that use derivatives to mimic the
performance of conventional U.S. and offshore funds while still keeping enough of their assets in Canada to qualify as Canadian content—thereby skirting Ottawa’s 20-per-cent limit on RRSP foreign content.
Industry analysts expect that in this year’s federal budget, Finance Minister Paul Martin will raise the foreign ceiling to 30 per cent, phased in over five years. That’s something the fund industry has long advocated, even though surveys in the past tended to show that most Canadian investors had little or no
U.S. EQUITY Funds that invest in shares of U.S. companies (3 years: 98 funds; 5 years: 70 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN MAXXUM American Equity 52.3 Cambridge American Growth 51 All Points Index U.S. Geared ($U.S.) 46.1 BPI American Equity Value 43.9 Spectrum United American Growth 42.2 Ethical North American Equity* 38.8 MDU.S. Equity 38 AGF American Growth Class 35.8 Jones Heward American 35.2 AIM American Premier 34.3 BOTTOM 5 Leith Wheeler U.S. Equity* 8.7 Cooperators U.S. Equity 7 First Trust DJIA Target 10 96 5.4 Beutel Goodman American Equity 2.9 All Points Index U.S. Bear ($U.S.) -16.3
TOP 10 RISK-ADJUSTED 3-YEAR RETURN MAXXUM American Equity 7.84 BPI American Equity Value 7.21 AIM American Premier 6.72 Royal & SunAlliance U.S. Equity 6.19 CIBC U.S. Index RRSP Fund 5.96 Green Line U.S. Index Fund ($U.S.) 5.93 All Points Index U.S. Index ($U.S.) 5.9 0IQ Ferique American 5.79 MDU.S. Equity 5.71 IRIS U.S. Equity 5.6 BOTTOM 5 Leith Wheeler U.S. Equity* 0.99 Cooperators U.S. Equity 0.36 First Trust DJIA Target 10 96 0.25 Beutel Goodman American Equity -0.27 All Points Index U.S. Bear ($U.S.) 4.07
TOP 10 AVERAGE 1-5 YEAR ANNUAL RETURN All Points Index U.S. Geared ($U.S.) 46.8 Spectrum United American Growth 36.9 BPI American Equity Value 35.3 Ethical North American Equity* 34.3 MD U.S. Equity 33.8 AGF American Growth Class 32.2 Cambridge American Growth 31.4 Green Line U.S. Index Fund ($U.S.) 28.4 Clarica MVP U.S. Equity 27.4 Vistafund American Stock 1 27.1 BOTTOM 5 BG Private Foreign Equity 16.6 Industrial American 15.7 Leith Wheeler U.S. Equity* 12.5 Beutel Goodman American Equity 10 All Points Index U.S. Bear ($U.S.) -17.4
GLOBAL EQUITY Funds that invest in companies anywhere in the world (3 years: 88 funds; 5 years: 59 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN BPI Global Opportunities 63.2 Orbit World* 47.4 AGF 20/20 Aggressive Global Stock 39.7 Global Strategy Rothschild World Companies 31.7 MAXXUM Global Equity 31.2 BPI Global Equity Value 30.7 Atlas Global Value 30.4 Spectrum United Global Growth 30.2 Clarington Global Opportunities 29.1 C.l. Global 28 BOTTOM 5 Hansberger Value Sector 6.6 Templeton Global Small Companies 6.2 Hansberger Global Small Cap -6.6 Cambridge Global -7.1 Hansberger Global Small Cap Sector -7.3
TOP 10 RISK-ADJUSTED 3-YEAR RETURN BPI Global Opportunities 10.73 Orbit World* 7.78 MAXXUM Global Equity 5.57 BPI Global Equity Value 5.32 Manulife Cabot Global Equity 5.18 C.l. Global 5.13 O’Donnell World Equity 5.09 FMOQ International Equity 5.08 C.l. Global Sector 5.01 AGF 20/20 Aggressive Global Stock 4.93 BOTTOM 5 Trimark-The Americas 0.49 Hansberger Value Sector 0.49 Cambridge Global -0.52 Hansberger Global Small Cap -2.5 Hansberger Global Small Cap Sector -2.67
TOP 10 AVERAGE 1-5 YEAR ANNUAL RETURN Global Strategy Rothschild World Companies 34.6 Orbit World* 28 BPI Global Equity Value 24.8 Atlas Global Value 23.8 Acuity Pooled Global Equity 21.5 Dynamic International 21.2 BPI Global Small Companies 21.1 C.l. Global 20.8 Guardian Global Equity Classic 20.5 Canada Life U.S. & Int’l Equity S-34 20.2 BOTTOM 5 Trimark-The Americas 9.1 Cundill Value A 9 Investors World Growth Portfolio 8.8 Sceptre International 8.4 Cambridge Global -1.7 * Not available in all provinces
foreign content in their retirement savings plans and did not consider the issue to be particularly important. Clearly, their views have started to shift, perhaps because for most of the past two decades the Canadian market has failed to keep up with its U.S. counterpart. Comeau’s financial planner, Neal Gaudet of Bedford, N.S., says most of his 400 clients have switched part of their portfolios to the new cloned foreign funds in the past year or so. “It’s the biggest industry move in the last five years,” Gaudet says.
It’s also a trend many fund companies are anxious to encourage, since the management fees charged on cloned funds are typically higher than on the funds whose performance they track. But a few industry players wonder whether the interest in foreign investing has gotten out of hand. Richard Wernham, president of Toronto-based Global Strategy Financial Inc., introduced Canada’s first fully RRSP-eligible foreign fund in 1983 and has long been an advocate of investing outside Canada. But Wernham says he gets concerned when he hears about people who are now using clone funds to invest more than half of their RRSP money outside the country. “I do have this sense that the trend may have swung too far in that direction,” Wernham says. “We can’t forget that most investors are going to retire in Canada and spend Canadian dollars, so there’s an inherent currency risk in putting money outside Canada.”
Wernham adds that economists here and abroad generally view the Canadian dollar as
Funds with mixed portfolios of stocks and bonds (3 years: 160 funds;
5 years: 104 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN Transamerica Bal. Investment Growth 23.6 Transamerica Growsafe Cdn. Balanced 22.2 FMOQ Investment 19.7 McDonald Canada Plus 18.9 AIM Canadian Balanced 15.8 Acuity Pooled Cdn. Balanced Investment 15.4 Capstone Balanced Trust 15 CDA Balanced (KBSH) 13.5 OIQ Ferique Balanced 13.3 Cormel Balanced 13 Ml NAL-Investor Cdn. Diversified 1.7 Guardian Cdn. Balanced Classic 1.4 Hemisphere Value 1.2 Acadia Balanced -0.8 Cambridge Balanced -26.6 Transamerica Growsafe Cdn. Balanced 3.7 Transamerica Balanced Investment Growth 3.68 FMOQ Investment 3.4 AIM Canadian Balanced 3.14 Cormel Balanced 3.07 CDA Balanced (KBSH) 3.04 Capstone Balanced Trust 2.95 OIQ Ferique Balanced 2.9 Atlas Canadian Balanced 2.71 Acuity Pooled Cdn. Balanced Investment 2.55 RMI Hemisphere Value -1.23 Guardian Cdn. Balanced Classic -1.24 Acadia Balanced -1.26 Guardian Cdn. Balanced Mutual -1.54 Cambridge Balanced -2.65 TOP 10 AVERAGE 1-5 YEAR ANNUAL RETURN Transamerica Balanced Investment Growth 21.6 Transamerlca Growsafe Cdn. Balanced 19.9 FMOQ Investment 19.9 Acuity Pooled Cdn. Balanced Investment 17.6 McDonald Canada Plus 16.4 Capstone Balanced Trust „ 16 OIQ Ferique Balanced 14.7 CDA Balanced (KBSH) 14.7 McLean Budden Balanced Growth 14.6 Perigee Symmetry Balanced* 14.4 AGF Canadian High Income 7.1 Guardian Cdn. Balanced Classic 6 Hemisphere Value 6 Acadia Balanced 4.9 Cambridge Balanced -12.8 * Not available in all provinces
Funds that invest in bonds and other fixed-income securities (3 years:
124 funds; 5 years: 101 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN Acuity Pooled Fixed Income 10.6 Altamira Bond 7.6 MatchMaker Strategic Security Portfolio 2 6.1 Green Line Cdn. Bond 6.1 Westbury Canadian Life ‘B’ 6.1 Desjardins-Laurentian Bond 6 Sceptre Bond 5.9 SSQ-Obligations Canadiennes 5.7 Equitable Life Segregated Accum. 5.7 MatchMaker Reg. Strategic Security Portfolio 2 5.6 mum Vistafund Bond 2 2.2 FMOQ Bond 1.8 Templeton Cdn. Bond 1.4 Dynamic Income 0.8 Trans-Canada Bond 0.5 Acuity Pooled Fixed Income 2.36 MatchMaker Strategic Security Portfolio 2 1.7 Altamira Bond 1.68 Desjardins-Laurentian Bond 1.62 Green Line Cdn. Bond 1.56 MatchMaker Reg. Strategic Security Portfolio 2 1.46 Equitable Life Segregated Accum. 1.31 Westbury Canadian Life B 1.29 SSQ-Obligations Canadiennes 1.28 Sceptre Bond 1.25 mum Great West Life Government Bond B -1.62 Great West Life Government Bond A -1.96 Templeton Cdn. Bond -2.54 Dynamic Income -2.85 Trans-Canada Bond -3.74 Altamira Bond 12.2 Acuity Pooled Fixed Income 11.3 Green Line Cdn. Bond 10.5 SSQ-Obligations Canadiennes 10.2 Batirente Bond 10.2 Desjardins-Laurentian Bond 10.1 Westbury Canadian Life B 9.8 MAXXUM Income 9.8 Equitable Life Segregated Accum. 9.8 Scotia Cdn. Income 9.7 mum Pursuit Canadian Bond* 5.3 Templeton Cdn. Bond 4.7 Dynamic Income 4.6 Trans-Canada Bond 4.3 Empire Foreign Currency Cdn. Bond 2.9
‘When something is very popular and everyone’s doing it, the first thing you should do is step back and reconsider’
“hugely undervalued” at its present level of about 69 cents (U.S.). If they are right and the loonie appreciates significantly in the next year or two, he warns, “it’s going to punish the performance of international investments.” The other obvious risk facing investors is that of a major downturn in technology stocks. Currently, Nortel and its parent company, BCE Inc., together account for about one-fourth of the market capitalization of the TSE 300 index; they also generated two-thirds of its 1999 gain. Technology has also been powering American stock markets. By one estimate, the U.S. Internet sector alone now boasts a market value of $ 1.4 trillion, more than Canada’s entire gross domestic product. For Canadian mutual fund investors like Nan Gluschenko, 59, a retired nurse in Peachland, B.C., the potential gains are hard to resist. Last week, she and her husband moved a small portion of their money into a tech fund and some into a foreign clone fund, the first time they had invested in either category. “I wish we were in them before,” says Gluschenko, who describes herself as a “very cautious investor” who has had her fill “of high-risk things.”
If only investing were so simple. A year from now, mutual fund holders may look back on the tech stock bubble of 1999-2000 and wonder how anyone could have been so foolish. “When something is very popular and everyone’s doing it, the first thing you should do is step back and reconsider,” says Geoff MacDonald, a vice-president at Trimark Financial Corp. The only certainty is that at some point, many of those sky-high valuations are going to return to earth. Maybe then the tortoise will have a fighting chance.
With Patricia Treble and Susan Oh in Toronto
FOR BETTER OR WORSE
Average 1999 return by mutual fund category*
SCIENCE AND TECHNOLOGY
Funds that invest in companies involved in some aspect of science or technology (3 years: 22 funds; 5 years: 5 funds)
TOP 10 3-YEAR ANNUAL COMPOUND RETURN C.l. Global Telecom Sector 78.5 AIM Global Technology 77.3 Altamira Science & Technology 74.9 Talvest Global Science & Technology 71.9 Transamerica Growsafe U.S. 21st Century Index 63.6 CIBC Global Technology 62.8 ING Life CAN-DAQ100 58.8 Clarington Global Communication 56.4 C.l. Global Technology Sector 55 Universal World Science & Technology 50.6 Acuity Pooled Environment, Science & Technology 21.1 AIM Global Health Sciences 17.5 Green Line Health Sciences 16.8 C.l. Global Health Sciences 16.4 AIM Global Health Science Class 4.9 C.l. Global Telecom Sector 10.25 AIM Global Technology 8.69 Talvest Global Science & Technology 7.79 Altamira Science & Technology 7.51 Transamerica Growsafe U.S. 21st Century Index 7.17 Clarington Global Communication 7.06 Universal World Science & Technology 6.79 CIBC Global Technology 6.76 Spectrum United Global Telecom 6.55 C.l. Global Technology Sector 6 EEBE AIM Global Health Sciences 3.01 C.l. Global Health Sciences 2.98 Green Line Health Sciences 2.74 Acuity Pooled Environment, Science & Technology 2.31 AIM Global Health Science Class 0.14 Green Line Science & Technology 42 Spectrum United Global Telecom 37.3 AIM Global Telecom Class 37 AIM Global Health Sciences 28 Acuity Pooled Environment, Science & Technology 15.9 (Note: only five Canadian funds in the science and technology category have a five-year history)