Superstar funds for your portfolio

The stock market turmoil of the past two years has left many long-time mutual fund favourites battered and bruised. But not everyone has suffered. Some funds have stood up remarkably well to the onslaught and have emerged as the new superstars of these uncertain times.

For the past two months, I’ve been working with my co-author, Prof. Eric Kirzner of the University of Toronto, on the preparation of Gordon Pape’s 2003 Buyer’s Guide to Mutual Funds, which will be published by Viking Canada in November. Between us, we’ve identified several funds that deserve to be elevated to our top status ($$$$) on the basis of their long-term performance, their management talent, and their risk relative to return. Here are two that especially impressed us.

Trimark Select Canadian Growth Fund.

Frankly, Trimark has too many Canadian equity funds. There are four in all, and it’s very difficult to distinguish one from another since they all employ a similar style. All have withstood the rigors of the bear market quite well, due in large part to their value-based approach to stock picking. But this one gets our nod as the top choi right now.

It’s run by Heather Hunter, who moved over to Trimark from the Ontario Teachers’ Pension Plan in 1999. She favours large-cap stocks that offer long-term growth potential. The portfolio is well diversified, but was more defensive than its stablemates during the June-July market crunch, with a cash position of almost 16 per cent. Hunter prefers a buy-and-hold approach, typically retaining a stock for three to five years.

Returns have been improving and the latest results are especially impressive; the fund lost a fractional 0.2 per cent in the tough year to the end of August, while the average Canadian equity fund was dropping 7.8 per cent. The three-year average annual compound rate of return of 5.9 per cent is well above average for the category. Many of the top holdings also show up in other Trimark portfolios, but there is obviously enough differentiation to have an impact on returns.

The risk rating is the best among the four Trimark Canadian stock funds and is about half that of the S&P/TSX Total Returns Index. This is an excellent RRSP/RRIF choice.

O’Shaughnessy Canadian Equity Fund

The Royal Bank’s O’Shaughnessy funds deserve a lot more attention. Certainly, if you are a Royal investment client, these should be in your portfolio. There are two U.S. funds and one Canadian fund on offer. All rate $$$$ in our upcoming 2003 Guide. This is the Canadian entry and it has everything you want in a large-cap fund: a skilled and experienced manager, a relatively low MER for the category, no sales commissions, a transparent investment strategy, a good safety record, and some very fine performance results.

All the O’Shaughnessy funds use what might be called an active/passive approach: many of the same principles used by index funds are employed, but the system developed by U.S.-based manager James O’Shaughnessy modifies this method by actively selecting key stocks using specialized criteria he has developed.

In the year to Aug. 31, the fund gained 1.7 per cent compared to an average loss of 10.5 per cent for the Canadian Large Cap category. The three-year return to the same date was 12.1 per cent per annum. One of the attractions of this fund is that stocks are chosen using a combination of value and growth measurements, which means it should continue to do well when the markets finally turn upwards.

Copies of Gordon Pape’s 2003 Buyer’s Guide to Mutual Funds can be ordered on-line at 25 per cent off the suggested retail price. Go to: