The best from IA Clarington

The big Industrial Alliance (IA) insurance company surprised Bay Street last fall when it outbid CI Investments to scoop up the Clarington Funds. The new management team is now in the process of merging its prize with IA’s mutual fund subsidiary into a new company to be known as IA Clarington.

The revamped fund line-up is in a state of flux because one of IA’s first acts was to drop Seamark Asset Management, which had been running most of Clarington’s portfolios. Until we see how those funds perform under their new bosses, I suggest that investors should stand clear.

However, there are some good quality funds in this group that are not being shaken up. Here are my top picks from among the Clarington, IA, and R brand lines, which are all part of the merged company.

Clarington Canadian Small Cap Fund. This portfolio is in the hands of Leigh Pullen and the team at QVDG Investors, who also manage the Ethical Special Equity Fund. This fund got off to a slow start after its 1997 launch but it has looked strong ever since. It did not lose money in any calendar year during the bear market of 2002002 and has been on a tear ever since. In the three years to Feb. 28, it averaged 26.5 per cent a year in profits, which made everyone happy. The risk profile is better than average for a fund of this type, but be aware that small-cap funds can be volatile. The fund is overweighted to oil and gas with about a third of the portfolio in that sector. Rating: $$$$.

IA Canadian Conservative Equity Fund. This has always been a solid, low-risk performer. The portfolio is very blue-chip oriented, with an emphasis on financial services and resource stocks such as Penn West, Fording Coal, Petro-Canada, and banks. The management team targets companies with good earnings, book values, and steady dividends — all key factors in selecting value stocks. The fund held up very well in the bear market that opened this century with the only losing year being 2001 when the NAV declined 2 per cent. Since then it’s been nothing but profits. One-year gain to Feb. 28 was 19.2 per cent and the three-year average annual compound rate of return was 17.8 per cent. Longer-term, all performance figures from five years to two decades are above average. Not many people know about this fund (it has less than $200 million in assets) but it’s a worthwhile entry for conservative investors. The safety record is very good. Rating: $$$$.

R Canadian Smaller Companies Fund. One thing is certain: IA Clarington has plenty of great small-cap funds. The challenge will be to bring the same degree of excellence to the rest of the group. This is the lone star in the R Funds line-up. The returns are nothing short of fabulous and anyone who invests with this company should have a little money here. The person who is putting up the great numbers is Ted Whitehead of MFC Global Investment Management and he is doing a masterful job. The fund gained 17 per cent in the year to Feb. 28 and showed a three-year average annual compound rate of return of 26.5 per cent to that point, both figures well above average. In fact, since Whitehead took over in mid-2000 this fund has posted double-digit gains in every calendar year – and remember that covers the bear market period to October 2002. The worst calendar year gain during that time was 10.9 per cent in ’02 while the best was 35.1 per cent in ’03. This fund has been a first-quartile performer ever since it was launched in mid-1998, except for 2005 when it was in the second quartile. The portfolio includes both small- and mid-cap companies, with names such as Penn West Energy, Teck Cominco, and Iamgold on the top 10 portfolio list. Rating: $$$$.

Be sure to talk to a financial advisor before making any investment decisions.

Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter that provides advice on fund selection and strategies. For subscription information: