Stock Market: Global Funds Doing Well

Stock markets around the world are chalking up double-digit gains while Canada lags far behind. Here’s how to take advantage of the changing times.

Investors who are still stuck on Canadian stocks and equity funds are missing out on some nice profits.

Year-to-date, the TSX has been one of the worst-performing indexes in the world with a gain of only about 3 per cent at the time of writing. By contrast, all the U.S. indexes have posted double-digit advances. So have most of the major European countries as well as the exchanges in Japan, Australia, and Singapore. Australia’s performance is especially interesting since, like the TSX, the Sydney All Ordinaries Index is heavily weighted to resource stocks. Despite this, the Aussies have posted a gain of 13 per cent so far this year.

Many Canadians are missing out, however, because their portfolios are underweighted in global equities. In recent years, we’ve tended to keep our money invested at home, for several reasons. These included superior returns up to 2010, the rise of the loonie which eroded gains on U.S. and global securities, and turmoil in international markets.

But a lot has changed. The loonie has fallen back to well below par, thus providing a currency gain for unhedged foreign funds. The Canadian stock market is in a deep funk, with no sign of an early snap-back. We have to look farther afield for profits.

The easiest way to invest in a diversified global portfolio is by using ETFs or mutual funds. Here are two global equity funds that you might want to look at.

Templeton Growth Fund. After several years of mediocre results, the venerable Templeton Growth Fund is back near the top of the heap again. This fund, which seems to have been around forever (it was started in 1954), has always taken a value approach to stock selection, through good times and bad. Sometimes the value style falls out of favour but right now it’s working beautifully.

The fund posted an impressive gain of 29.1 per cent in the year ending Aug. 31, more than eight percentage points better than the category average. That pulled up the three-year average annual compound rate of return to just over 13.3 per cent, compared to 9.5 per cent for the peer group.

The geographic emphasis is on U.S. securities, which represent about 44 per cent of the portfolio. Names such as Citigroup, Cisco Systems, and CVS Caremark head the U.S. list. British stocks are second with a 14 per cent weighting. Templeton’s analysts obviously see a lot of potential in British financial institutions with both HSBC Holdings and Lloyds Banking Group among the top ten holdings.

This used to be the largest mutual fund in Canada but many investors drifted away over the years in search of better performance. It’s time for another look – portfolio manager Lisa Myers is doing a first-class job of resurrecting this golden oldie.

Mackenzie Cundill Value Fund. This one hasn’t been around quite as long as Templeton Growth – it traces its history back to 1967 – but like the Templeton fund it went through several lean years. Now it’s back among the top performers with a one year gain of 33 per cent and a three-year average annual compound rate of return of almost 11 per cent (C units).

Here again, value investing is the style but the application is somewhat different than that of the Templeton fund. U.S. stocks are the largest single position in both cases but here they represent less than 35 per cent of total assets. Financial stocks head the list, topped by American International Group, which almost went belly-up in 2008, Bank of America, and Citigroup. Japan is the next largest in geographic terms at 11.1 per cent, with Honda Motor the dominant company. The U.K. position is very small compared to the Templeton fund at just 2.2 per cent. Managers Andrew Massie and Dave Tiley also have a large amount of cash (about 18 per cent of assets) in contrast to the Templeton fund which is almost fully invested.

Ask a financial adviser if either of these funds is suited to your portfolio.

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