Advisor: New funds show potential

It takes at least three years to get a clear picture of any mutual fund’s performance. In that time, you can see how the portfolio will be run and how it will perform under varying economic conditions.

Three funds that recently reached their third anniversary seem highly promising. All rate $$$, which indicates an expectation they will produce above-average returns over time.

  •  Fidelity Disciplined Equity Fund   $$$

  • An equity fund manager has to deal with many variables. It’s not simply a matter of picking good
    stocks. They have to be the right stocks, in the right sectors, at the right time, at the right price.

    One way to improve the odds is to reduce the number of variables. This fund removes the variable of sector weighting.

    Veteran manager Robert Haber does not concern himself with deciding which sectors of the TSE 300 Composite Index are likely to outperform. The fund’s portfolio is structured so as to reflect the actual sector weightings of the Index, so Haber and his team can focus on stock selection.

    Concentrates on sectors
    This enables him to concentrate on choosing thcompanies within each sector that are deemed to have the best growth potential.

    So far, the results have been quite good, although the 16.5 per cent year-to-date loss to mid-October was a bit below average for the Canadian Equity category. The fund gained almost 50 per cent in 1999, its first full calendar year, and managed a decent 15.8 per cent gain in the tough markets of 2000.

    Three-year average annual compound rate of return is a fine 18.4 per cent, despite the recent setback. The fund passed its third anniversary on September 30th, so qualifies for a formal rating. It’s starting it off with $$$.

  •  Fidelity Canadian Balanced Fund     $$$
    This is another Fidelity entry that has just reached the three-year mark. It’s a true balanced entry,
    currently almost equally divided between stocks and bonds.

    Lead manager is Robert Haber, who also heads Fidelity Disciplined Equity. The track record so far has been extremely good. The fund shows a three-year average annual compound rate of return of 12 per cent to September 30th and has been a first quartile performer in its category every year.

    Next page: ICM U.S.  Small Cap Equity Fund $$$

  • The portfolio is well diversified, with an emphasis on government bonds and blue chip stocks. There’s also a 10 per cent high-yield bond component.

    This fund will tend to be less volatile than the companion Fidelity Asset Allocation Fund, so it’s better suited for more conservative investors. It’s starting off with a $$$ rating.

  •  ICM U.S.  Small Cap Equity Fund $$$

  • The mandate of this fund allows the managers to invest in companies with a market capitalization of up to US$2.5 billion. In Canada, a company that size would be at least mid-cap, so it gives you an idea of the difference in scale between the two countries.

    As a result, the portfolio contains many names you may be startled to see classified as “small caps”, including Bell & Howell, Barnes & Noble, Rayonier, and Crane. Nonetheless, the majority of names will be totally unfamiliar to the average investor.

    Mix of styles
    The managers certainly seem to know how to make the style mix of value and GARP work effectively. The fund showed a one-year gain of 7.2 per cent to September 30th, and a three-year average annual compound rate of return of 15.4 per cent.

    The average fund in the U.S. Small-to-Mid-Cap category lost 31.3 per cent in the last 12 months, and had a three-year annual gain of 7.8 per cent, so the numbers for this entry are outstanding. As a bonus, risk is much better than average for this type of fund.

    The only catch is that there’s a $5,000 minimum to get in. The fund is sold directly by Integra Capital Corporation on a no-load basis. Rated $$$. Call 1-877-799-1942 for details.

    From the November 2001 edition of Mutual Funds Update