Be wary of market neutral funds

<POne of The results from the April Nasdaq tumble has been a return to favour of value investing. This is an extremely important development for RRSP and RRIF investors, and you should review your portfolios accordingly.

Value investing is simply The practical application of The old “buy low, sell high” adage. However, practitioners of this approach to money management have been taking it on The chin for The past couple of years, as growth potential became The predominant factor in determining a stock’s price. Now we are seeing a measure of prudence return to The markets, which will suit value investors just fine.

This means that mutual funds that employ a value style are likely to regain some of their tarnished lustre. For example, Ivy Canadian had a one-year rate of return of just under 3% to March 31. But in April, it gained 4.8%, a remarkable showing given The turbulence that was taking place. Other value funds displayed similar pattern.

If you abandoned value funds in frustration during The big stock market run-up, now is the time to revisit them. One that we recommended in the May issue of Mutual Funds Update is Synergy Canadian Value Class, managed byuzann Pennington. It gained 13.7% over The 12 months to April 30, a terrific return for a value fund during that tough time. It held its ground during The slump, producing a 4.0% gain in April.

If you’re looking for a global value fund, we have recommended The AGF International Value Fund in Mutual Funds Update. It is managed by The Charles Brandes organization of San Diego. Brandes is one of The world’s great value investors and this fund should do well in The current climate. This is one of those cases where you really have to ignore The historical performance numbers. Over The 12 months to The end of April, this fund gained a meagre 3.2%. But that was then. It’s a new ball game now. In The first four weeks of May, The fund added 4.7%. That gives you a much truer picture of what’s happening and where things are likely to go from here.