Four funds I like

I spend a good part of each day (too much, my wife says) poring over the latest news and statistics from our ever-expanding universe of mutual funds and ETFs. The goal is always the same: To identify funds with a strong track record that should rank near the top of any investor’s shopping list.

Over the years, I’ve seen many funds that performed brilliantly for a period of time, only to flame out. That why I put such a high premium on long-term consistency. Of course, even the strongest funds will get slammed in a market collapse such as we experienced in 2008-09. But those events are aberrations. The good managers shake off such set-backs and quickly return to the business of making big profits for investors.

Here are four of my long-time favourites. Tuck them away in your portfolio and watch the profits roll in.

ABC Fundamental-Value Fund. After a couple of bad years, this fund has staged a huge comeback, gaining more than 70 per cent in the year to March 31. Manager Irwin Michael is a deep-value investor and some of his recent stock selections such as Fortress Paper have paid off big-time for his fund. This fund has been on the Recommended List of my Mutual Funds/ETFs Update newsletter since 1997. It has had its ups and downs but investors who stuck with it earned an average annual return of 9.7 per cent over the past decade. That’s an outstanding long-term result. The major drawback is the high cost of admission: $100,000.

Dynamic Power Canadian Growth Fund. If you can’t afford Irwin Michael’s fund, here’s one that’s more accessible, price-wise. The initial minimum is just $500. Manager Rohit Sehgal has a long history of outperformance and he is on a roll right now. In the year to March 31, this fund gained 66.8 per cent, almost double the category average and well ahead of the S&P/TSX Total Return Index. Sehgal, who is regarded as one of the top growth managers in Canada , achieved this with a combination of tried and true blue-chip stocks (big banks, Research in Motion) and some lesser-known resource companies (Bankers Petroleum, Niko Resources). The latest results pulled the 10-year average annual compound rate of return up to 7.3 per cent, well ahead of the 4.7 per cent average for the peer group. If you are looking for a growth fund to add to your portfolio, here it is.

Fidelity Canadian Disciplined Equity Fund. An equity fund manager has to deal with many variables. It’s not simply a matter of picking good stocks. They have to be the right stocks, in the right sectors, at the right time, at the right price and that’s not an easy task to pull off consistently. One of the ways to improve the odds is to reduce the number of variables. Index funds are the prime example of this: with these funds, all variables are taken out of the equation except the movement of the underlying index (in foreign index funds, exchange rates create an additional variable).

This Fidelity fund is indexed to the sector weights of the S&P/TSX Composite Index. This means that lead manager Anrew Marchese does not need to concern himself about which sectors of the S&P/TSX Composite Index are likely to outperform and which are likely to be laggards. All he has to worry about is stock selection and his performance is evaluated on the basis of his picks.

The results have been very good, in fact the fund posted above-average returns for all time frames from one to 10 years to March 31. The five-year average annual compound rate of return was 7.4 per cent (B units), well above the category average of just over 5 per cent. In the most recent 12-month period, the fund posted a gain of 43.1 per cent, almost four percentage points above the category average. That’s important because Robert Haber, who had managed the fund since its inception, handed over the reins to Andrew Marchese early in 2009 and the new manager did not miss a beat.

The portfolio is heavily weighted to blue-chip stocks such as the banks, Suncor, and Research in Motion and is well-diversified. I like the transparency of the stock-picking isolation concept and expect this fund to continue do well in the future.

RBC Global Precious Metals Fund. The financial crisis in Europe has triggered a new gold rush. The price of bullion, which had languished for several months, surged to an all-time high last week, cracking through the US$1,200 an ounce level on May 7, finishing at US$1,210.40.

This fund is my top choice for investors who want a diversified portfolio of previous metals stocks. You’ll find a lot of familiar names in the top 10 list including Barrick Gold and Goldcorp but there are also several smaller companies that are doing well, notably Red Back Mining and San Gold Corp. The units gained 40.8 per cent in the year to March 31 and the five-year average annual compound rate of return of 21.4 per cent is well ahead of the peer group average. The MER is a very reasonable 2.04 per cent.

Ask your financial advisor if any of these funds is right for your needs.

Adapted from an article that originally appeared in Mutual Funds/ETFs Update, a monthly newsletter that provides advice on fund selection and strategies. For information on a three-month trial offer, click here.

Photo © Pali Rao