AIC Canadian Balanced
For many people, balanced Canadian equity funds are where the rubber hits the road when it comes to investments. It is the category in which fund managers strive to provide the best return with the least risk, the perfect vehicle for people who want to both save for retirement and sleep at night.
The winner in this year's Lipper Fund Awards for Canadian balanced equity focus funds is the AIC Canadian Balanced Fund. Over the past three years, returns have averaged 14 per cent annually.
"Our goal for the past four years has been to maximize returns while avoiding volatility," says James Cole, Calgary based senior vice-president and Canadian Balanced Fund manager.
"What we have done is focused on great Canadian companies that have been undervalued then stuck with them.
Economic conditions have been a plus, he adds. Low interest rates have fuelled corporate expansion, while removing the temptation to invest heavily in the bond market.
"We might go there for a very short period, but it doesn't make much sense to invest in bonds when interest rates are just 4.5 per cent," Cole says.
U.S. Small Companies
Three years ago, coming off an award-winning year for its Canadian small-cap mutual fund, AIM Trimark Investments decided the time was right and demand was there for a similar fund aimed at the U.S. small to mid-cap sector; same portfolio management team and the same approach.
"The Canadian small-cap fund did so well we had to cap it," says Patrick Farmer, chief investment officer. "We felt the time was right to offer our investors an opportunity to take advantage of the growth in small-cap companies in the U.S."
That decision has paid off. AIM Trimark's U.S. Small Companies Class fund has won this year's Lipper for the U.S. Small/Mid Cap Equity Funds category. The fund has shown an average three-year annual return of 12.53 per cent as of Dec. 31 and a one-year return of 12.06 per cent. Today, its assets total $176 million.
"The fund's success is based on the approach taken by the portfolio managers and the analysts they work with," says Farmer. "They use the same tests as private equity investors would."
In simple terms, they consider themselves buying the company not buying its shares, he says.
"They look for strong companies with strong management and the potential for long term growth," he says. "We don't mind looking wrong in the short run if we can look right in the long run."
Altamira Bond Fund
Mutual funds focusing on fixed income investments such as government and corporate bonds may have played poor stepsister to equity funds for much of this decade. But not at Altamira Investment Services.
The company's Altamira Bond Fund picked up a Lipper this year in the Canadian Bond category with a performance that has to be rated as stellar in times of stable 4 per cent to 4.5 per cent interest rates.
Its three-year average annual return has been 6.5 per cent, the five-year figure is 7.4 per cent and the 10-year average annual return has been 7.6 per cent.
"Those are really extraordinary figures for fixed return investments," says James Whitman, Altamira's senior vice-president of sales and service. "What they reflect is the fund manager's ability to ride (follow) the index. Right now the average maturity date for our bonds is 12.79 years," which gives managers the leeway to either invest in longer or shorter term bonds.
BMO North American Dividend Fund
For investors seeking that winning blend of cash and capital appreciation, the Bank of Montreal's BMO North American Dividend Fund took top honours at the first Lipper Awards for Canada.
BMO won in the North American Equity category, one of 30 that the awards cover.
What this fund offers is a dividend yield of 2.4 per cent as of Feb. 28 (compared with the category average of 2 per cent) and a three-year average annual return of 14.7 per cent versus a category average of 7.8 per cent during the same period.
The one-year return has been even more impressive: 20.5 per cent, compared with 11.4 per cent for the category average, BMO says. The fund's goal is to invest about 75 per cent of its assets in North American dividend-paying common and preferred shares, including Mexico but excluding Canada. The balance goes to shares of Canadian companies plus cash and cash equivalents.
CI Global Health Sciences Corporate Class
For Andrew Waight, the Lipper Fund Awards shine a welcome light on at least one investment sector that he feels has been sadly overlooked for much of this decade. He is a portfolio manager with Altrinsic Global Advisors LLC and the CI Global Health Sciences Corporate Class fund he manages for CI Investments Inc. picked up this year's top award for the health care category.
"Since the meltdown in the high tech and telecom sectors earlier this decade, investors have tended to overlook some sectors such as health sciences," he says. "I think winning a Lipper award may bring the spotlight back on them once again."
Granted, health sciences returns have not been as spectacular as some other equity classes and have bounced up and down from year to year, but the fund, under Waight's management, has turned in what even the harshest critic would have to admit is a satisfying performance.
The one-year return at the end of February was 9.9 per cent, for two years the figure is 12.3 per cent, for three years the average annual return has been 7.8 per cent, for four years 16.5 per cent and for five years 7.5 per cent.
The fund has about $259 million in assets with about 75 per cent invested in U.S. companies and the balance in their European counterparts.
CIBC International Small Companies Fund
The Canadian Imperial Bank of Commerce knows that small business can mean big investment returns. Its CIBC International Small Companies Fund now has a market capitalization of $2.5 billion. Better yet it has generated annual returns well into and above the teens for the past five years.
In recognition for that pack-leading performance, the fund was named this year's Lipper winner in the International Equity category.
The past year's return was 22.31 per cent, well above the median 17.2 per cent reported by competing funds. For three years the average is 17.2 per cent versus 11.2 per cent annually, and for five years it generated average annual returns of 16 per cent, more than double the 7.3 per cent median.
The fund was launched in 1997 and has been managed by Pictet Asset Management of England since 2002. Since its inception, the CIBC International Small Companies Fund has averaged a 12.29 per cent annual return to unit holders.
DFA Five-Year Global Fixed Income Fund
DFA US Value Fund
The Canada-U.S. exchange rate showed its positive side in at least one category of this year's Lipper Fund Awards. Dimensional Fund Advisors went home with the trophy and bragging rights for its Five-Year Global Fixed Income Fund in the foreign bond category.
The fund was rated top performer, showing an average 3.04 per cent annual return over the past three years. It was one of two awards DFA picked up at the ceremony. The other was for U.S. equity funds, where its US Value Fund took the top prize.
"Exchange rates played a major role in Canada," says Weston Wellington, vice-president of the Santa Monica, Ca., fund manager. Canadians who invested in U.S. fixed income securities, for example, benefited when translating their U.S.-dollar interest payments back into Canadian dollars.
The exchange rate worked the other way when it came to funds that invest in U.S. equities because as the Canadian dollar rose, it ate into U.S. gains. Yet DFA's US Value Fund took top rank in the U.S. equity classification with an average three-year return of 12.54 per cent.
"While the Canadian dollar did indeed erode profits compared with those achieved by U.S. investors, the returns were still something we are justifiably proud of," Wellington says.
Fidelity Far East Fund
Fidelity Focus Financial Services Fund
With wins in two very different categories, Fidelity Investments Canada sees this year's Lippers as a terrific opportunity to show its bench strength.
"There is a move among investors towards consolidating their holdings in just one or two fund companies," says Jeff Storie, an investment manager with the international mutual fund and pension management giant.
"To attract that business, you have to show that you have the breadth and depth of talent to generate superior returns right across the spectrum of investments," he says. "We think winning these two awards shows we do, indeed, have that bench strength."
Fidelity Canada, which has 54 funds and manages a total of $43 billion in assets, picked up the Lipper in the Asian equity, excluding Japan, category with its Fidelity Far East Fund while its Fidelity Focus Financial Services Fund won in the financial service sector.
The Far East fund showed a three-year average annual return of 17.09 per cent as of Feb. 28. By comparison, the benchmark for the sector stood at 14.04 per cent.
Fidelity's Financial Services Fund has produced a three-year average annual return was 16.71 per cent as of the end of February. The benchmark index for the category was 11.86 per cent.
First Asset Funds TDK Resource Fund
Even market novices know Canada's resource industries have been hot for most of this decade. But hot is one thing and blazing hot quite another.
This year's Lipper Fund Award winner for natural resourcebased funds belongs in the latter category. First Asset Funds TDK Resource Fund reported a 36.86 per cent average annual return for the past three years - the period Lipper was looking at when judging its winners.
"That is just a small part of the picture," though, says Paul Dinelle, First Asset executive vice-president. "To get a real feel you have to look at the fund's six-year history."
His whole picture shows a most recent year-to-year return of 35.4 per cent and an average 33.56 per cent return since the fund was launched six years ago. He attributes its success to Deans Knight Capital Management Inc. of Vancouver, which manages TDK Resource for First Asset.
"Their view is that the industry may have its ups and downs from time to time, but they are essentially long-term investors," he says. The fund mix has been 50 per cent oil and gas, 30 per cent metals and minerals, 10 per cent gold and 10 per cent cash or equivalents.
Franklin Templeton Global Growth Portfolio
Investment advisers are continually urging clients to increase their foreign content, the investment equivalent of "eat your vegetables!" With Franklin Templeton's Global Growth Portfolio Fund, Lipper's winner in the Global Growth category, investors get a truckload of their "veggies" in an easily digestible form - a mutual fund salad composed of nine separate international mutual funds.
The combination is intended to address a number of management styles, geographies and industrial sectors and make the decision easy for investors who are faced with a dizzying array of international fund options.
"We have growth, we have GARP (growth at a reasonable price), we have value and we have deep value so we have the (investment) styles covered, says Don Reed, president of Franklin Templeton's Canadian operations and lead manager in the firm's International Equity Fund, which is part of the mix.
Franklin Templeton's group of nine produced a 12 per cent compound annual return for the year ended December 2006.
GGOF Asian Growth and Income Fund
Buying dividend-paying, blue chip Asian companies and U.S. dollar convertible bonds proved to be a winning formula for Guardian Group of Funds' Asian Growth and Income Fund, which won in the global balanced - equity focus category.
"One of the major points is doing it with low volatility, because if you have dividend-paying stocks, whether it is Asia or Canada, U.S. or Europe, you actually tend to outperform because you are getting part of your return in the form of dividends, which of course are cash," says Gavin Graham, Guardian Group's chief investment officer.
"Secondly, because you have a regular return in the form of income, you actually have less volatility."
As a result, Guardian Group's fund boasts about one-half the volatility of its closest ranked trio of competitors, Graham says.
"For people who want to do Asia and they all love the story, what tends to freak them out is the volatility," he says. "Here's a low-volatility way to buy Asia. If you buy boring but pretty steady dividend-paying stocks which benefit from rising levels of consumer income in Asia, you actually end up outperforming and you do it with less volatility. That works as well in Asia as it does anywhere else."
Investors Group European Mid-Cap Equity
Investors Group came out on top in three-year performance for its European Mid-Cap Equity fund because its Dublin-based investment team believes in picking winners and staying away from sectors it considers losers.
Heavily weighted in just three sectors, the fund uses a "bottom up" stock-picking style, investing in individual stocks and following broader themes "that make sense and would not change overnight," says Martin Fahey, portfolio manager and the head of Investors Group's European operations.
The fund's three-year performance to the end of December 2006 was 25.3 per cent per annum, and 18.5 per cent over the past five years.
The fund's best year was 2006, when it soared 48.5 per cent.
Elliott & Page's Core
Canadian Equity Fund
Manulife Financial's mutual fund division, Elliott & Page Ltd., operates under the premise that most investors spend far too much time worrying about what to buy and far too little time thinking about what to sell.
Most of the top publicly traded companies are well known to analysts and fund managers, so the premise of Elliott & Page's Core Canadian Equity Fund - the Lipper Fund Award winner in the Canadian Equity Pure category - is to always be on the lookout to sell.
"If there isn't a new name out there to track down, then don't spend your time on the buy decision," says Pat McHugh, vice-president and senior portfolio manager of Canadian equities. "Focus more on the sell decision."
A key is what McHugh dubs the cockroach theory. "You find a cockroach in your house, you kill it, but you haven't killed all the cockroaches," he says. "When companies have bad news, the chief executive officer isn't going to talk about the bad news, he or she is going to put a positive spin on it.
"We believe 95 per cent of the time that bad news begets a whole sequence of subsequent bad news," McHugh says. "Anecdotally, what price would you have gotten out at if you had sold Cott when it had its first bad news - or Laidlaw, or Nortel, or Loblaw."
Elliott & Page Core Canadian Equity Fund returned 18.9 per cent for the three-year period ending in 2006 and, at that time, had $200 million in assets under management.
Cdn. Asset Allocation Fund
While most mutual funds are set up to reduce risk and maximize gains, tactical funds were created to allow fund managers to intelligently gamble as to the direction of markets.
"With a tactical asset allocation fund, its role is to position (the fund) based on the (fund managers') view of the market," says Martin Lavigne, senior vice-president product and sales for National Bank Securities.
The National Bank/Fidelity Canadian Asset Allocation Fund (winner in the Canadian Asset Allocation category) used that strategy to produce a three-year annual return net of fees of 12.3 per cent.
"Fidelity did quite well by reducing the bond portion a lot last year and were able to position themselves quite nicely to the Canadian market. That is what made the difference at the end of the year," Lavigne says.
OTG Balanced Fund
Unless you are a teacher, you probably have never heard of OTG Financial Inc.
But OTG (which stands for Ontario Teachers Group), winner of the Lipper Fund Award in the Canadian Balanced category, could put on a seminar with its steady-as-she goes approach to investing.
"We basically look at things that have less volatility and more stable growth," says Marianne Taggio, OTG Financial's president and chief executive officer.
"We also have a split where we have identified that not less than 40 per cent or more than 65 per cent is in equities and the balance, obviously, is in debt instruments."
Other firms rely on similar combinations of common and preferred shares and short-term fixed income, "but (the OTG Balanced Fund) really is a mix of that and the risk, so less volatility and more stable," Taggio says. "We are looking at mitigating risk as, typically, someone who goes in a balanced fund; they are not looking for betting the farm. Their risk tolerance is limited."
The performance of OTG's balanced fund illustrates the strategy works. In 2006, the fund returned 13.25 per cent and generated gains of 16.5 per cent and 14.3 per cent for 2005 and 2004 respectively.
Sceptre Equity Growth Fund
Constant pruning of losing investments is the secret to the multi-year success of the Sceptre Equity Growth Fund, the Canadian Small Cap winner in the Lipper Fund Awards.
"We have had many different winners in many different industries and relatively few losers," says Allan Jacobs, the portfolio manager of the fund with Sceptre Investment Counsel Ltd. "We tend to sell our losers rather than adding to them thinking that the market is wrong."
Unlike many of its small cap competitors, Sceptre does not really care where the good companies come from, as long as they perform. "We've had a lot of good stocks in mining, oil and gas, financials," Jacobs says.
On average, Sceptre's small cap team interviews the management of prospect companies at a rate of two a day, or about 500 annually. Sceptre invests in about one in six companies it regularly follows. (The fund's current holdings include 65 companies).
The fund, with more than $700 million in assets, returned 27.8 per cent annually over the past three years.
Sentry Select Capital Corp. Precious Metals Growth Fund
Although Sentry Select Capital lives and breathes gold mining in the management of its Precious Metals Growth Fund, the investment firm is not blinded by the gleam of the lustrous metal.
"We are not perma gold bugs like many in the sector," says Kevin MacLean, vice-president and senior portfolio manager with Sentry Select.
He notes that unlike most precious metals funds, Select will regularly take cash holdings when it is pessimistic about the prospects of the sector, holding about one-third cash in the fund in 2005 and a "double-digit cash" position last May. "We do tend to play defence now and again if we don't like the prospects of the sector," MacLean says.
The strategy must be working because the Select won the Lipper for the top-ranked precious metals fund.
Benefiting as most precious metal funds did from soaring prices, the fund returned 74 per cent in 2006 and had a three-year return of 27.8 per cent.
TD Canadian Equity Fund
TD Latin American Growth
TD Japanese Growth Fund
TD Entertainment & Communications Fund
TD Asset Management Inc. found itself a big winner in the Lipper mutual fund-rating awards, coming out on top in four categories. Its performance was judged best in the Canadian fund industry categories of Canadian Dividend and Equity Income, Emerging Markets Equity, Japanese Equity as well as Science and Technology.
For TD, the most gratifying win had to be that of its $2.9 billion Canadian Equity Fund, which dwarfs the other three funds.
It produced a 22.7 per cent, three-year return for the span ended in 2006. TD has a three-pronged strategy for the award-winning Canadian fund: quality dividend-paying stocks, "North America's best growth companies" and resource companies that stand to benefit from the rapid industrialization of countries such as China and India, says John Smolinski, the lead manager of the fund.
Of TD's other winning mutual funds, the TD Japanese Growth Fund ($52 million of assets under management) posted a 10.3 per cent average annual return, the TD Entertainment & Communications Fund ($169 million in assets) achieved a 17.2 per cent annual return and the TD Latin American Growth Fund ($190 million) enjoyed a 41.7 per cent annual return over the past three years.