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It's not too late for commodity latecomers

rcarrick@globeandmail.com

WHAT WE'RE UP TO

Investors who are underweight in commodities, this one's for you.

TODAY'S SEARCH

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 nameAssets ('000)3-yr beta1-yr quartile3-yr quartile5-yr quartile
Mackenzie Univ Wld Resource Class194,7510.64222
Trimark Canadian Resources588,3870.71223
Mackenzie Univ Canadian Resource1,579,8600.72222
Dynamic FocusPlus Energy Inc Trust438,8160.7324
GGOF Resource - Mutual58,0950.7634
Fidelity Global Natural Resources-A22,6620.82124
Dominion Equity Resource Growth Cls24,9580.82444
Middlefield Canadian Growth Class180,7530.83444
Dynamic FocusPlus Resource397,9200.91311
National Bank Natural Resources32,4450.91123
CI Global Energy Corporate Class193,1540.92232
RBC Global Resources327,5730.93311
CI Signature Canadian Resource649,1450.94111
Creststreet ResourceN/A0.94144
Sentry Select Canadian Energy Grwth20,9060.95344
AGF Global Resources Class113,3010.99212
TDK Resource Fund Inc.43,9331.00412
Scotia Resource138,7761.00322
TD Energy271,4211.02333
Sprott Canadian Equity2,140,3561.03432
EnerVest Natural Resources Fund Ltd29,7621.05344
BMO Resource377,1241.05211
CIBC Energy172,3811.06443
Middlefield Resource Class32,0351.06444
Marquest ResourceN/A1.0711
Altamira Energy Fund18,6251.0733
Renaissance Global Resources29,2741.08333
Investors Cdn. Natural Resource-A589,0351.0834
Altamira Resource167,5411.09221
TD Resource254,4211.10333

SOURCE: GLOBEFUND

© The Globe and Mail

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