The cream of the crop

Every year, University of Toronto Professor Eric Kirzner and I zero in on the brightest stars in the mutual funds universe in our annual Buyer’s Guide to Mutual Funds. The 2003 edition is about to be published, so here’s a sneak preview of some of our Fund Award winners for this year.

Fund of the year: Sprott Canadian Equity Fund
The performance of this fund over the past year has been nothing less than astounding. While the stock markets were crashing, this fund has chalked up a gain of better than 27% so far in 2002 (to Oct. 22).

It’s not a one-shot wonder. Manager Eric Sprott, who heads up Toronto-based Sprott Asset Management, is on a four-year roll. After losing 16.6% in its first full calendar year (1998), this fund scored gains of 53.4% in 1999, 44% in 2000, and 43.7% in 2001.

How do they do it? By employing “against the grain” thinking. This is not your typical Canadian equity fund. At the end of September, it held 33% of its assets in cash and another 31% in mining and precious metals stocks.  Mr. Sprott believes that the bear market may last several years yet, and has positioned the fund accordingly.

&t;>No one can predict how long this incredible performance will continue. If Sprott’s pessimistic view is wrong and the markets turn up, this fund could be left in the dust if the management team isn’t very agile. But give credit where credit is due. No Canadian mutual fund came close to this one in terms of rewarding its investors during the bear market.

Company of the year: Saxon Funds
Investors are finally beginning to take notice of this small Toronto no-load company that quietly turns out above-average returns year after year. We have touted the virtues of the Saxon funds for several years in the Buyer’s Guide, and we’re delighted to see that their assets under management grew by 170% over the 12 months to the end of September. 

Finally, the hard work of managers Bob Tattersall and Richard Howson is being recognized. Both are dedicated value stock pickers, and they have stuck with their style through good times and bad. The result is a stable of five top-quality funds, all of which made money for investors in the bear market.

The Saxon Small Cap Fund, which Tattersall directs, is a particular favourite. Although it operates in what is normally considered to be high-risk territory, it hasn’t recorded a losing calendar year since way back in 1990. Its 10-year average annual return of 14.2% (to Sept. 30) is among the best in its category.

Saxon Stock Fund, which Howson directs, also shows a long and distinguished record, with an average annual return of 14.6% over the past decade. Saxon Balanced Fund has the second-best 10-year record in its peer group,  with an average annual gain of 12.3%.

In fact, there’s not a weak link in the group. This is a company that has proven itself over time and we are very impressed with it. As long as Howson and Tattersall stay healthy, it should continue to deliver good results to its investors for years to come.

Next page: Surprise fund of the year

Surprise fund of the year: Mackenzie Growth Fund
The Mackenzie organization apparently became so embarrassed at the poor performance of their Industrial Group of Funds that they scrapped the whole line earlier this year.

Part of the reason for the dimming of what had once been one of the brightest stars in the fund galaxy was the incredibly bad performance of the one-time flagship Industrial Growth Fund. For years, it had been allowed to languish under the direction of Alex Christ, one of the company’s founders. Assets melted away and Industrial Growth was reduced to a shadow of the one-time powerhouse it had been.

Finally, Christ stepped aside and Mackenzie belatedly took action — not just on this fund but the entire product group. Most of the Industrial funds were merged out of existence or rebranded with the Maxxum name.  In the shuffle, this fund was left as something of an orphan. It was finally renamed simply as Mackenzie Growth and received a new manager in Fred Sturm, a company veteran.

The change seemed like an interim step towards closing it down, but guess what? The fund, which had already been showing signs of life in 2001, went on a tear. Despite the bear market, it generated a gain of 5.5% in the 12 months to Sept. 30, good enough to propel it to a top five-star rating on Globefund’s quantitative measurement scale. If Sturm can keep up the pace this fund might one day become a powerhouse again – assuming the company allows it to survive.

Bond fund of the year: Mackenzie Universal World Tactical Bond Fund
Foreign bond funds haven’t been a great place for your money over the long haul. But the latest year was an exception. Low interest rates and a weak Canadian dollar helped to push most of the funds in this category to double-digit gains.

This wasn’t the top fund in terms of total return (+9.5% for the year to Sept. 30), but it’s one of the few pure foreign currency plays, with no hedging back into loonies. The portfolio consists only of the highest-grade AAA bonds – issues from the U.S., Germany, Japan, the U.K., Switzerland, and France. Returns are above average over all time periods. With no Canadian bond funds emerging as stand-outs, this one wins the prize.

To order a copy of Gordon Pape’s 2003 Buyer’s Guide to Mutual Funds at 25% off the suggested retail price, go to: