WHAT WE'RE UP TO
Investors who are underweight in commodities, this one's for you.
Our task is to find natural resources mutual funds for investors who are coming late to the stunning runup of energy, metal and fertilizer prices. Sure, they want a resource fund that has shown the ability to capitalize on high commodity prices. But given how elevated the entire commodity sector is, they also have to consider risk.
Accordingly, we've screened here for funds that have first- and second-quartile performance over the past one- through five-year periods. Quartiles divide funds in a category into four groups according to their returns, and the first two quartiles are the place to be. Also, we've searched for funds with the lowest scores in a volatility measure called beta. Beta compares a fund's performance swings with its benchmark index, which is said to have a beta of one. Lower betas are what we're after.
SO WHAT DID WE TURN UP?
Good news for latecomers to commodities. It appears you can buy natural resources funds that have combined great returns and lower risk than their peers. Two funds in this group stand out and they're both managed by the same guy, Fred Sturm of Mackenzie Financial.
Mackenzie Universal Canadian Resource, with $1.6-billion in assets, is the second largest fund in the resource category behind Sprott Canadian Equity. The Mackenzie fund's returns are routinely above average, and the level of volatility is far below that of the Globe Natural Resources Peer Index, which represents the broad spectrum of resource funds. The smaller Mackenzie Universal World Resource Class has a similar risk-return profile and differs mainly in that it has much less exposure to Canadian stocks. Trimark Canadian Resources has also done a good job of balancing returns and low volatility.
Given this week's initial public offering of shares of Sprott Inc., it's worth spending a moment to look at how Sprott Canadian Equity ranks on the risk-return scale. Fund analysts often describe this fund as a beast for volatility. In fact, its three-year beta numbers are on the high side but by no means off the scale.
|Natural Resources Funds with lowest 3-yr beta|
|As of April, 2008|
|Fund name||Assets ('000)||3-yr beta||1-yr quartile||3-yr quartile||5-yr quartile|
|Mackenzie Univ Wld Resource Class||194,751||0.64||2||2||2|
|Trimark Canadian Resources||588,387||0.71||2||2||3|
|Mackenzie Univ Canadian Resource||1,579,860||0.72||2||2||2|
|Dynamic FocusPlus Energy Inc Trust||438,816||0.73||2||4|
|GGOF Resource - Mutual||58,095||0.76||3||4|
|Fidelity Global Natural Resources-A||22,662||0.82||1||2||4|
|Dominion Equity Resource Growth Cls||24,958||0.82||4||4||4|
|Middlefield Canadian Growth Class||180,753||0.83||4||4||4|
|Dynamic FocusPlus Resource||397,920||0.91||3||1||1|
|National Bank Natural Resources||32,445||0.91||1||2||3|
|CI Global Energy Corporate Class||193,154||0.92||2||3||2|
|RBC Global Resources||327,573||0.93||3||1||1|
|CI Signature Canadian Resource||649,145||0.94||1||1||1|
|Sentry Select Canadian Energy Grwth||20,906||0.95||3||4||4|
|AGF Global Resources Class||113,301||0.99||2||1||2|
|TDK Resource Fund Inc.||43,933||1.00||4||1||2|
|Sprott Canadian Equity||2,140,356||1.03||4||3||2|
|EnerVest Natural Resources Fund Ltd||29,762||1.05||3||4||4|
|Middlefield Resource Class||32,035||1.06||4||4||4|
|Altamira Energy Fund||18,625||1.07||3||3|
|Renaissance Global Resources||29,274||1.08||3||3||3|
|Investors Cdn. Natural Resource-A||589,035||1.08||3||4|
© The Globe and Mail
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