Lift up a rock in the mutual fund world and you might just find something valuable.
A few dozen of the 3,400 funds sold in this country do fine work for their unitholders, with little or no acclaim. You could easily conduct a thorough search for funds and never come across them.
Some overlooked funds are part of big fund companies, but most come from small players that live on the fringe. These companies may lack a marketing machine to schmooze investment advisers and buy ads, or it could be that they don't pay commissions to advisers at all. In the financial world, that's a recipe for obscurity.
It's time to fix that. Today we take a look at seven good mutual funds that you may not know about.
What a motley collection. There's tiny Capstone Balanced Trust, a high-performance balanced fund. There's Dominion Equity Resource Fund, a volatile oil-and-gas play run out of Calgary with great returns recently and longer term. There's also a fund from an industry giant, Mackenzie Growth.
Each of the seven has been around for at least 10 years and demonstrated an ability to deliver better-than-average returns. The other common trait is a susceptibility to being neglected by investors and advisers.
Before we examine these funds, let's talk about availability. While on-line brokers typically sell these funds, some advisers may not be willing or able to do so. If you do find someone who does sells these funds, an up-front sales commission may be charged. Shop around because terms vary.
Now for the seven funds:
Capstone Balanced Trust
This Canadian balanced fund, run by Capstone Consultants, has been around for 23 years, but it took on new life a year or so ago when respected fund industry veteran John Weatherall came aboard. Mr. Weatherall has set a 70-30 split between equities and fixed income, which he believes is the optimum mix for balanced funds. The result is a fund with a little more emphasis on stocks than many balanced funds, and superior returns over the past year.
Quote: "I'm a huge believer in trying to go after performance." -- John Weatherall.
Why it's obscure: Money manager Morgan Meighen & Associates acquired the tiny Capstone family a few years ago, but it's only now getting around to marketing the funds.
Note: Mr. Weatherall also runs a new equity fund called Capstone Canadian Equity Trust.
Chou RRSP
Delve into the track record of this Canadian equity fund from Chu Associates and you're transported to a place where the bear market never happened. Chou RRSP made a compound average annual 18.9 per cent a year for the three years to Sept. 30, while the average peer fund lost 4.3 per cent. Manager Francis Chou says this fund tends to lag in rising markets, but his long-term results beat the category averages by far. Mr. Chou describes himself as a bargain hunter, which means he's having trouble finding things to buy in this fast-rising market. Right now, about half the fund's assets are in cash.
Quote: "This fund is for those who are long-term oriented, not people chasing returns." -- Francis Chou.
Why it's obscure: Financial writers love to highlight these funds because they're such gems, but the public remains largely oblivious because Mr. Chou relies on word of mouth and performance to get the word out. That said, Chou RRSP's assets have risen to a point where Mr. Chou is looking at closing it to new investment.
Chou Associates, a larger U.S. equity fund, has numbers that are at least as impressive as those for Chou RRSP.
Co-operators Canadian Conservative Focused Equity
This 53-year old Canadian equity fund from Co-operators Mutual Funds has provided consistently excellent results, including solid profits during the bear market. At the same time, volatility is less than half that of the average peer fund, and one-third that of the S&P/TSX composite index. The emphasis here is on dividend-paying stocks, but corporate bonds and an income trust have recently been among its top holdings.
Quote: "We can make all kinds of mistakes in our picks of securities for the portfolio, but one of the saving graces for the unitholder is the reinvestment of dividends." -- George Frazer, manager of this fund since inception.
Why it's obscure: This fund has languished under the ownership of Co-operators, a Guelph, Ont.-based insurer. It may get a boost after completion of a deal in which Co-operators mutual funds are being sold to Quebec-based insurer Industrial Alliance.
Dominion Equity Resource
If you want a diversified natural resource fund, this isn't it. The Dominion Equity Resource Fund Inc. offering is a tightly focused play on smaller-capitalization companies in the area of oil and gas production and services. This fund has trounced the average resource fund over most time periods, but it can tank when oil and gas stocks go sour. In 1998, for example, it lost 37.5 per cent. Even so, people who have held it for the past 15 years have made a compound average annual return of 12.5 per cent.
Quote: "This fund . . . is not for the faint of heart and we don't pretend otherwise." -- Dean Prodan, Dominion Equity Resources' Calgary-based manager.
Why it's obscure: This is your classic no-profile, no-load fund. This may change under a recent deal that is expected to bring the fund under the Dynamic banner.
Saxon World Growth
Operated on the cheap by Saxon Funds from the global investing hotspot of Toronto, this global equity fund has humbled the competition from much larger companies both in the short and long terms. Saxon World Growth is a value fund (go figure), which means it seeks beaten-down stocks. It differs from some global equity funds by holding smaller-cap stocks.
Quote: "We simply look for statistically inexpensive stocks that are comprehensible to us. It's remarkably simple." -- Fund manager Robert Tattersall.
Why it's obscure: Saxon is a small no-load company that doesn't spend a lot on marketing.
Beutel Goodman Income
The usual criticism of bond funds is that management expenses eat up too much of the returns. Beutel Goodman Managed Funds, an institutional money manager, solves this problem by squeezing the management expense ratio for its Canadian bond fund to a little more than one-third the category average. This cost advantage has helped the fund rank among the top 25 per cent in annual returns in six of the past eight years.
Quote: "This is our showcase bond fund, and it's the same methodology that is used to manage the money of some of the largest institutions in Canada." -- lead manager Bruce Corneil.
Why it's obscure: Retail funds are a sideline for Beutel Goodman.
Mackenzie Growth
Once known as Industrial Growth, this 36-year-old Canadian equity fund was the original member of the Mackenzie Financial family. Once-sterling results deteriorated until the arrival in January, 2002, of Fred Sturm, Mackenzie's chief investing strategist. With free rein to identify promising sectors and themes, Mr. Sturm has revitalized the fund to the extent that returns are now running well ahead of the average for the Canadian equity category, with less risk. The fund is about half committed to resource stocks right now.
Quote: "All my personal RRSP money has gone into the fund in the past couple of years, and so has my wife's and so has my brother's." -- Fred Sturm
Why it's obscure: Mackenzie, with 224 fund products in its lineup, hasn't got around to playing up this particular one.
Panning for performance
With a little looking, we unearthed seven nuggets of outstanding returns from some lesser known names in the Canadian mutual fund industry.
CAPSTONE BALANCED TRUST
Total assets: $4.95-million
Minimum initial investment: $500
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 16.48% 8.88%
3 year -4.99 -0.95
10 year 7.45 6.89
CHOU RRSP
Total assets: $65.05-million
Minimum initial investment: $10,000
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 20.06% 14.04%
3 year 18.99 -4.22
10 year 16.07 7.19
CO-OPERATORS CDN. CONSER. FOC. EQ.
Total assets: $37.33-million
Minimum initial investment: $500
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 13.87% 14.04%
3 year 5.72 -4.22
10 year 12.14 7.19
DOMINION EQUITY RESOURCE
Total assets: $35.02-million
Minimum initial investment: $10,000
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 28.20% 23.34%
3 year 23.01 10.99
10 year 9.75 4.09
SAXON WORLD GROWTH
Total assets: $77.17-million
Minimum initial investment: $5,000
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 20.94% 8.14%
3 year 7.16 -11.61
10 year 9.76 5.07
BEUTEL GOODMAN INCOME
Total assets: $130.23-million
Minimum initial investment: $10,000
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 7.77% 6.45%
3 year 8.34 6.46
10 year 7.53 6.84
MACKENZIE GROWTH
Total assets: $239.32-million
Minimum initial investment: $500
Returns as of Sept. 30, 2003
Fund Group avg.
1 year 24.38% 14.04%
3 year 14.49 -4.22
10 year 4.49 7.19
SOURCE: WWW.GLOBEFUND.COM
© The Globe and Mail
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