Three Global Funds for 2006

International funds invest most of their money outside of North America but global equity funds can invest around the world. That gives the managers a huge amount of freedom in making their choices.

You’d think that would translate into good returns. Unfortunately, it hasn’t. Over the past five years, the average Global Equity fund has lost 1.62 per cent annually, according to Globefund. That’s a sorry record.

Part of the problem has been the rise of the Canadian dollar. Many global funds invest heavily in U.S. stocks, which have been hardest-hit in currency exchange terms by the soaring loonie.

Of course, the degree of currency exposure in global equity funds will depend on how heavily weighted they are to the U.S. The Canadian dollar has not appreciated as dramatically against other major currencies like the euro or the pound and I don’t see that changing in the coming year. If currency risk is a concern for you, check the asset weightings for the global funds in which you are interested before buying.

From an economic perspective, I anticipate some slowing in world growth in 2006 due to high oil prices and rising interest rates. Therefore, I am placinmy emphasis on funds that have a proven ability to maintain value in such markets, although there are a few growth-oriented entries on our list for more aggressive investors.

With that, here are three global funds that I feel are worth considering for your portfolio in 2006. All performance numbers are to Nov. 30.

Fidelity NorthStar Fund. This outstanding new entry from Fidelity just passed its third anniversary and I am giving it my top $$$$ rating. It is unusual for me to put a fund into our highest category so quickly but the numbers leave me no alternative. In its first three years, the fund posted an average annual gain of 12.7 per cent compared to an average of 6.5 per cent for the peer group. Part of this can be attributed to fortunate timing – the fund was launched just as the bear market of 2000-2002 hit bottom, thus enabling the managers to buy stocks cheaply. But they didn’t have that advantage over the latest one-year period yet they still outperformed the category by a good margin with a gain of 10.9 per cent. All the while they were keeping their risk level well below that of the Global Equity group. High return and low risk add up to a very strong combination in my book.

Mackenzie Cundill Recovery Fund. Here’s a fund that is perfectly in tune with the Peter Cundill philosophy of looking to buy a dollar for 50 cents. Its mandate is to invest in companies that are underperforming, in turnaround situations, or which have low credit ratings — or any combination thereof. You’ve heard of junk bond funds? This might be described as a junk stock fund. But if you are comfortable with this contrarian investing concept, Cundill and his team are probably the best in the business at pulling it off. The fund has never lost money in a calendar year since it was created in 1998. It came through the bear market unscathed (the worst year was a 1.7 per cent gain in 2002) and managed to turn in great profits even when the loonie was surging against the U.S. dollar. The performance numbers are astounding. Over most recent five years this fund gained an average of 17.1 per cent annually while the category as a whole was showing an average annual loss of 1.6 per cent. The latest one-year number is a gain of 19.6 per cent, more than double the category average. How can you argue with that?

Saxon World Growth Fund. Manager Robert Tattersall brings a value-oriented stock selection criteria to this multi-country entry. The mandate directs the manager to look for small-to-mid-cap companies trading outside of Canada however some of the companies in the mix are anything but small, such as Pfizer, the pharmaceutical giant. Geographic and sector allocation is secondary to the main focus of identifying value stocks. The fund gained 8.2 per cent in the latest year, slightly below average for the peer group, but shows stellar longer-term performance figures. The three, five, ten, and fifteen-year numbers are well above average. The fund held up very well during the bear market, so risk is low. You’ll need $5,000 to take a position. It’s a no-load fund.

Talk to a financial advisor before purchasing any of these funds.

Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter edited by Gordon Pape that offers guidance on fund selection and portfolio management. For subscription details: