It’s a stock pickers’ market

There aren’t many equity funds making money these days. But there are a few managing to turn the trick, even in these lousy markets.

Most of the winners are what I call stock pickers’ funds.  They’re run by highly disciplined managers who are very selective and have a sixth sense for making a move at just the right time.

They are not pseudo-index funds, in that their holdings and returns do not replicate the major indexes.

Here are three examples that you may want to look at:

  •  ABC Fundamental-Value Fund
The initial investment requirement is $150,000, so there is obviously a financial barrier here.

But if you have the money, you won’t find a better stock picker these days than Irwin Michael, the founder and president of the ABC funds. He’s a dedicated value investor, the style that works best in the current environment.

This one holds the honour of being the top-performing Canadian equity fund over the decade to y 31st, with an average annual compound rate of return of 20.6 per cent.

Over the past year, the fund gained 24.4 per cent, at a time when the average entry in the category was in the red.

  • If you prefer a balanced fund, examine the companion ABC Fully-Managed Fund.
It’s also number one in its category over the past decade. It gained 12.9 per cent in the past 12 months.

  • The third fund in this small group is the ABC American-Value Fund.
    It led all U.S. equity funds over the past year with a return of 32.7 percent. No one else was even close.

    •  Saxon Small Cap Fund
    You have to be a great stock picker to run a winning small-cap fund in Canada. The marketplace is tiny compared to that of the U.S.

    And our small-cap companies have market caps that wouldn’t even show up on the radar screens of managers of comparable U.S. funds. Robert Tattersall, has been running this fund since it was launched in 1985 and has proven his skill many times over.

    The fund sports a 10-year average annual compound rate of return of 16.7 per cent and gained 22.7 per cent in the past year.

    Minimum initial investment is $5,000.

    Next page: Mackenzie Cundill Value Fund

    •  Mackenzie Cundill Value Fund
    No one has ever accused Peter Cundill and his associates of running with the crowd. Forget about indexes, ignore popular trends. These guys sniff out bargains in places most other managers shun.

    Sometimes, they get it very wrong. This fund went nowhere for several years in the 1990s.

    But when their stock-picking antennae are working, they can spin profits from the most unlikely sources. Right now, they have a lot of money invested in one of the world’s most unloved markets, Japan, and it’s paying off.

    The “C”units, (the only ones currently available to retail investors), have outperformed the average in the Global Equity category for all time periods over the past three years. In the three months to May 31, the fund gained 10.8 per cent, compared to a minus1.7 per cent average for the peer group.

    Three-year average annual return is 16.8 percent. By comparison, the MSCI World Index shows an average annual loss of about 4 per cent over the same period. Sometimes running against the herd really does pay off!

    Adapted from an article that originally appeared in Mutual Funds Update.