The fund universe is huge, and growing larger all the time. Not even the most diligent professional advisors can stay on top of all the choices that are out there, so how can the ordinary investor expect to do so?
That’s why each year I do a systematic search of the fund universe, looking for some top performers that most people have never heard about. I call them my Hidden Gems. Most, but not all, of these funds have assets under management of less than $100 million. Some are from companies that normally don’t come to the attention of investors, such as Stone & Co. Others are part of large fund groups but for one reason or another they have been lost in the shuffle.
Here are two Canadian stock funds that popped out when I applied a series of screens to the vast GlobeinvestorGold fund database. If you own either of them, give yourself a pat on the back. If not, and you want to investigate further, talk to your financial advisor about them.
Stone & Co. Dividend Growth Class Canada. Very few investors have heard of the small firm of Stone & Co., founded by industry veteran Richard Stone. And, truth be told, there are not many funds in the group that would warrant more than a passing glance. This is a notable exception. It has been a first or second quartile performer since its creation in fall 2002 (fortuitously, right at the end of the bear market). It has never lost money over a 12-month period. And it is one of the few funds in the Canadian Dividend and Income Equity category that was not hammered over the 12 months to April 30. In fact, it gained slightly more than 6 per cent while the average fund in the category lost 2.5 per cent.
The reason is simple. Unlike most dividend funds, this one has relatively low exposure to the financial sector, with only 16.8 per cent of its assets there. As a result, it wasn’t dragged down by the sell-off in the bank stocks that resulted from the U.S. subprime mortgage mess. Instead, manager Martin Anstee loaded up with big winners like Potash Corporation of Saskatchewan, EnCana, Goldcorp, and Canadian Natural Resources. Okay, these aren’t the stocks you would normally expect to find in a dividend fund but the results speak for themselves. Over the past five years, the fund gained an average of 17 per cent annually, well ahead of the competition.
Minimum initial investment is $1,000 and the fund is available across Canada. Try to buy the front-end load A units at zero commission. The code is SCL515. My rating: $$$$ (out of four).
IA Clarington Canadian Leaders Fund. This fund, which was renamed from the R Canadian Leaders Fund last summer, has been coming on strong recently. The one-year return to April 30 was 13.2 per cent, a remarkable performance in a difficult year during which the average fund in the Canadian Equity category managed a gain of only 2.3 per cent. Over the past three years, the fund has averaged 16 per cent annually, again well above average.
Manager Pierre Bernard invests in a portfolio of large-cap Canadian stocks which are seen as leaders in their respective industries and he does not hesitate to take big positions. His largest holding right now is Barrick Gold, which accounts for more than 8 per cent of the total assets. He will also buy out-of-favour stocks such as Bombardier, which currently makes up 6.8 per cent of the total assets.
This fund has only $73 million in assets under management. With a minimum investment requirement of only $500, it should be attracting a lot more money. My rating: $$$$.
Incidentally, I happened to mention this fund to a broker friend of mine last week who was looking for an alternative for a client who had a large position in an underperformer managed by one of the major companies. A couple of days later he called back to say he had studied this fund carefully and was advising his client to make a switch.
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, click here.