Winning U.S. funds
Many people are unwilling to invest in U.S. equity funds these days because of the impact of a rising loonie on profits. Their reluctance is understandable. The U.S. Equity category as a whole shows negative returns over all time frames from three to 10 years. If you invested $1,000 in an average fund in the fall of 2000, it would be worth only $624 today. There’s not much even the cleverest marketer could do with that.
But there are a few bright lights amidst all the gloom. The top performer right now is Dynamic Power American Currency Neutral Fund which gained 52.3 per cent over the 12 months to Oct. 31. It is the currency-hedged version of Dynamic Power American Growth Fund, which is ahead 48.1 per cent over the past year (the difference is due to the appreciation of the Canadian dollar during that time).
Both funds are managed by Noah Blackstein, one of Dynamic’s stars. He placed big bets on the U.S. information technology sector (51 per cent of total assets as of Oct. 31) and they have really paid off. Some of his major positions like Apple, F5 Networks, and Acme Packet have scored huge gains in recent months. The bad news is it hasn’t been enough to wipe out the losses incurred during the stock market crash. The fund’s three-year average annual compound rate of return is still negative at -5.9 per cent.
The other thing to be aware of it that this is a “feast or famine” fund. In the 10 years since 2001 it has been a first or second quartile performer six times but has finished in the bottom quartile on four occasions. As a result, the average annual compound rate of return for the core fund over the decade is in the red at -1.7 per cent. However, much of that is due to currency erosion — the loonie advanced about 60 per cent against the U.S. dollar during that time. And even that negative return is much better than the average for the category.
One of the big surprises in the U.S. Equity category is the IA Clarington Sarbit U.S. Equity Fund. It was created out of a merger of three underachieving funds in June 2009 and given to veteran value manager Larry Sarbit. He is known for an ultra-conservative investment style and in fact more than 11 per cent of the fund’s assets are sitting in cash. Despite this, he was able to post a gain of 31.6 per cent over the year to Oct. 31.
The portfolio is unorthodox by any standard. It includes unloved telecommunications giant Verizon, tobacco company Philip Morris International, and stamps.com, a little-known U.S. on-line postage firm. Somehow, it all works and investors are thrilled.
So you can profit from U.S. equity funds in the current market. It’s just a matter of choosing the right ones. Ask your financial advisor if either of these funds is right for you.
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.