Vengrowth I pays off big

Gains almost 55% in six months.Last August, I advised readers of the Mutual Funds Update newsletter to buy their labour-sponsored funds for the 2000 RRSP season early. Specifically, I suggested taking a position in the original VenGrowth Fund (which we’ll henceforth call VenGrowth I) before it was closed to new investors. That subsequently happened in December, when a new fund, VenGrowth II, was launched.

In August, I said that by acting immediately you’d be buying units in a fund that was already mature and would realize a much better short-term return on your investment than by waiting and putting your money into the new fund. That’s because venture capital companies, in which these funds invest, usually take from three to seven years to start paying off.

So what’s happened since? Great things. VenGrowth I is up 54.7% for the six months to Feb. 29. Anyone who acted quickly not only has a good profit, but is also in line to claim up to $1,500 worth of tax credits on their 1999 return.

The company says that several factors have driven the strong performance of VenGrowth I, including the maturing of several private holdings that resulted in increased luations, a fully-invested status with a significantly reduced cash position, and the completion of several successful transactions.

One of these was the sale of Inlogic Software, which was purchased by Daleen Technologies in December, producing a gain of more than 200% for the fund.

It’s a similar story over at C.I. Covington, which also capped its original fund at the end of last year and replaced it with Covington II. The original fund gained 53% in the three months to Feb. 29, after it was closed, for much the same reason as VenGrowth I.

Unfortunately, only Ontario residents were able to take advantage of either of these opportunities – VenGrowth and Covington aren’t sold in any other province. However, some of the labour-sponsored funds that are available nationally have also being doing well lately. Examples:

Canadian Medical Discoveries Fund, up 57.5% for the three months to Feb. 29. We recommended this fund several times in earlier editions of MFU, but it has been a disappointment until recently. Now it has finally broken out.

Canadian Science and Technology Growth Fund, up 38.2% for three months.

Working Ventures Canadian Fund, up 20.9% for three months. This one has been a long time coming (it was the first nationally-available labour fund) but patient investors are now reaping their rewards.

Reprinted from the April, 2000 edition of Mutual Funds Update, edited and published by Gordon Pape.