Where are safe haven mutual funds?
Many mutual fund investors don’t realize that some equity and balanced funds are much safer than others.
In fact, there is an elite group that has never lost money over a calendar year, and some others with almost unblemished records.
If you’re looking for relative safety but don’t want to stash your cash in a money fund, here are my top picks for low-risk funds to consider.
The write-ups that follow make reference to “risk” and “beta”.
These figures come from Globefund.com. If you click on any fund name on their list, you’ll bring up a detailed analysis of it.
Look closely at two lines: 3 year risk and 3 year beta.
3 year risk:
This analyses a fund’s monthly movements, up and down, to produce a statistical measure of volatility, known as standard deviation. The lower the figure, the more stable the fund.
Comparable numbers for the peer group and the benchmark index are also shown for comparison.
3 year beta:
The beta line measures the fund’s volatility against that of a benchmark index, such as the S&P/TSX Composite.
The beta of the indexs always 1.00. A fund with a higher beta is therefore more volatile (higher risk). The lower the beta, the less the risk.
Every fund in the Ivy family is relatively low risk. That’s the way they’re run, and a hallmark of lead manager Jerry Javasky. This fund meets all my low-risk criteria.
It has never lost money over a calendar year since it was launched in October 1992. Globefund gives it a risk rating of 9.21, compared to 16.18 for the Global Equity category as a whole.
The beta is a very low 0.29, compared to 1.00 for the benchmark MSCI World Index, as expressed in Canadian dollars.
Add to this an outstanding performance record which has seen the fund outperform the average of its peers over every time frame and you have a clear winner.
- Mackenzie Ivy Canadian Fund
Risk rating is excellent and the beta comes in at 0.19, which is extremely low.
Next page: Trimark Fund
The record here is not completely unblemished, but this fund certainly ranks well up on the safety list. The last time it recorded a losing year was back in 1990, when it lost almost 10 per cent as world markets dived.
But since then it has produced a decade of uninterrupted profits and the fund is even showing a gain in this difficult year.
As you might expect, the risk rating is very good and the beta quite low at 0.60, although significantly higher than that of Ivy Foreign Equity.
Here again the record isn’t perfect, but it comes darn close. The only calendar year loss this fund has suffered since its launch in late 1990 was a tiny 0.3 per cent drop in 1994. Otherwise, it’s been clear sailing.
The downside is that the long-term returns from this conservatively-managed value fund are only slightly above average for the peer group.
Over the decade to May 31, the fund showed an average annual gain of 8.7 per cent, compared to 8.4 per cent for the category as a whole.
Still, a slightly above average return with well below average risk has to be respected.
You’ll need at least $10,000 to take a position in this one.
This is actually a fund of funds, investing in other funds operated by this organization (now part of Franklin Templeton).
Like the Beutel Goodman fund, it also has one blemish over the past decade, a loss of 1.8 per cent in 1994. Otherwise, every year has been profitable.
The difference is that this fund has generated higher returns. Ten-year average annual compound rate of return is 11.3 per cent, significantly higher than that of the Beutel Goodman Fund.
However, it should be noted that those results are for the original no-load “F” units, which had a low MER. Returns for the new “A” units are lagging well behind those of the “F” units over comparable periods.
The message is that if you own the “F” units, keep them. I have reservations about the “A” units.
It was very tough for balanced funds to make a profit in 1994, when both the stock and bond markets sagged at the same time. That was the only stumble for this fund as well, with a fractional loss of 0.7 per cent.
Apart from that, investors have enjoyed a combination of below-average risk and above-average profits.
Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter offering advice on fund selection and portfolio-building. To take advantage of the current three-months free bonus offer: http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=78