Bear beaters

When bull markets get long in the tooth, I start looking around for mutual fund managers who have a history of preserving investors’ assets in tough weather while continuing to ring up profits for as long as the good times roll. They are not hard to identify – just check out their records during the 2000-2002 bear. Anyone who withstood that grim selling onslaught knows how to deal with adversity.

Most fund managers fail the test but there are a few who stand out. Here are three of them.

Francis Chou. Canada’s “manager of the decade”, an honour bestowed on him by the fund industry a couple of years ago, is a dedicated value investor who absolutely refuses to overpay for a stock. If that means sitting in cash for a while, so be it – better that than to fritter away clients’ money. Back in the late 1990s, Chou launched a broadside at investors and managers who were paying absurd prices for tech stocks in the hope they could turn around and sell them for even more absurd prices. He stayed on the sidelines, biding his time, all the while accepting criticism for his funds’ lacklustre showing.

Then came the tech crash and Chou’s warnings were borne out. His funds prospered. Chou RRSP Fund posted calendar year gains of 16.5 per cent, 17 per cent, and 31.9 per cent over the three years from 2000 to the end of 2002. Chou Associates Fund, which has more of a U.S. and international focus, did almost as well with gains of 8.4 per cent, 21.4 per cent, and 30 per cent.

Since the return of the bull, both funds have continued to post good profits. Chou Associates has been particularly impressive, with a five-year average annual compound rate of return of 10 per cent to May 31.

Kim Shannon. While she was running CI Canadian Investment Fund, Shannon established a reputation as a smart, disciplined manager who knew how to protect assets in rough times. That fund never lost money in a calendar year under her direction; its worst performance was a break-even finish in 2002.

Of course, she’s no longer with CI, having severed relations with them last fall to join forces with the Brandes organization. Her new Brandes Sionna funds have not had time to establish a track record but based on her history there is no reason to expect they will perform much differently than CI Canadian Investment when the next bear comes along.

The closest entry to her old CI fund is Brandes Sionna Canadian Equity Fund (her company is named Sionna Investments), which was launched in December. It’s been a little slow out of the gate but that means nothing. With Shannon at the helm, it should perform very well.

Eric Bushell. Bushell is chief investment officer of the Signature Advisors team, which is a division of CI Investments. He uses what CI describes as a “blended” approach to securities selection but his bias is definitely towards large-cap value stocks.

Bushell started his career with the BPI funds and went over to CI in 1999 when that company acquired the BPI operation. He quickly made his mark as a thorough and efficient securities analyst who knew how to preserve capital during down markets while scoring decent gains when stocks were rising.

The Signature funds performed very well during the bear market, with the Signature Canadian Resource Fund especially strong as it posted double-digit returns in each of those difficult years. However, the fund I like best for nervous investors is the Signature Dividend Fund. This one will never be a top performer and you may overlook it as a result. The reason is the high percentage of preferred shares in the portfolio. Most “dividend” funds invest mainly in dividend-paying common stocks so you’ll find a lot of banks, insurance companies, utilities, and the like. A fund with a high preferred share component won’t be able to match the total returns its competitors generate but the trade-off is lower volatility and less risk in a down market. For instance, during 2000-02 this fund lost money in only one calendar year and that was a modest decline of 2.3 per cent in 2002. Over the three years to May 31, investors received an average annual gain of 11 per cent – not spectacular but certainly adequate. This is the kind of fund you’ll be happy to own if markets stumble again.

Talk to a financial advisor before investing in any of the mentioned funds.

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: