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Rob Carrick

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Just run away

Rob Carrick


OTTAWA (globefundGOLD) - A smart New Year's resolution for 2006 is to take up running. Not the whole jogging thing, mind you. The kind of running we're talking about here is the sort you do after sitting down and pondering the awful returns that some of your mutual funds may have delivered in the past year.

The dumbest rookie move in all the investing world is to sell a mutual fund that has come off a bad year. But when a bad year follows other bad years, you have a problem on your hands that may just be solvable by running away and finding something else. Investors who own one of the most popular mutual funds in the land are in this exact position as we head into 2006. The fund is Mackenzie Ivy Canadian and it's a sell.

With about $5.1-billion in assets, Ivy Canadian ranks as the country's most widely held Canadian equity fund. This distinction can be explained by the fund's reputation as a place to get exposure to Canadian stocks with lots of attention to downside protection. You'd expect to sacrifice some upside in a conservative fund likes this, but there comes a point where the protection of your capital is no longer worth the performance penalty. Ivy Canadian has crossed this line.

As the Globefund.com website shows, Ivy Canadian is below average in every timeframe from the past three months to the past 10 years. It used to be that this fund's resilience in down markets kept its long-term numbers competitive, but that's no longer the case. Over the past one- and three-year periods, gains have been running at about half the average for Canadian equity funds and almost one-third those of the S&P/TSX composite index.

This is easily explained. The fund has only about 10.6 per cent of its assets in energy stocks, compared to about 25 per cent for the broad market, and there's a big helping of duds-of-the-moment like Loblaw Cos. and Jean Coutu Group. These individual calls are not the problem at all. Rather, it's the fact that unitholders have missed so much of market's upswing in the past three years. Ideally, Ivy Canadian unitholders would see their returns perk up once the broad stock market loses its momentum. The question is, how much more underperformance is there to live through before this fund finds its legs?

You could wait around to find out, or you could run. As it happens, there are two conservative Canadian equity funds that have offered solid downside protection while doing much better in the hot markets of the past two years - CI Harbour and CI Canadian Investment.

Here are a few other big equity funds that investors should think about running from:

The big risk in running from a fund is that it will start its recovery just after you leave. For this reason, it's a good idea to check the momentum of a fund before selling using Globefund.com. Ivy Canadian, by the way, has no momentum. On your mark. Get setů

Rob Carrick has been writing about personal finance, business and economics for more than 12 years.

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