OTTAWA (GlobeinvestorGOLD) — The easiest way to play defence in your portfolio is to farm the job out to a pro.
A few mutual fund managers have demonstrated ability over the years to not just minimize the damage when the stock markets go down, but also to make a decent buck. Regardless of whether you're worried about high interest rates, political upheaval, avian flu or alien invasion, the defensive specialists of the fund world stand at the ready.
How do we find these managers? To start, let's look at returns in the three-year bear market that began this decade. Then, for a longer-term perspective, let's consider the down markets of 1998 and 1994. A fund that held up well in all of most of those periods is one that truly knows how to fight the bear.
In the Canadian equity fund category, some examples of this sort of fund are:
- CI Canadian Investment: If you owned this fund from 1994 on, the worst you would have experienced was the 1.4-per-cent loss in that year and a flat year in 2002, when the return was zero. Kim Shannon has been the manager for almost 10 years, showing equal dexterity in good years and bad. That's somewhat rare for conservative managers because they often tend to lag the markets when the stock markets are hot.
- IA Canadian Conservative Equity: This wily veteran of a fund has been around since 1950, so it has seen more than a few stock market setbacks. While it lost 2 per cent and 3 per cent, respectively, in 2001 and 1994, its overall safety record is sterling. Over the five years to Feb. 28, a period the encompasses much of the last bear market, its compound average annual return of 11.6 per cent. is almost 4 percentage points higher than the average fund. Plus, this fund has only two-thirds the volatility of the S&P/TSX composite index.
- CI Harbour, RBC O'Shaughnessy Canadian Equity: Both these funds weren't around back in 1994, but they survived the mayhem of 1998 and 2001-02 with negligible damage. The RBC fund lost 2 and 2.3 per cent, respectively, in 2002 and 1998, but its five-year return is close to double that of the average Canadian equity fund. In 2001, while the average fund lost 2.5 per cent, O'Shaughnessy Canadian Equity made 6.1 per cent. CI Harbour's worst annual result was a mere paper cut of a loss - 0.9 per in 2003.
- Sprott Canadian Equity: Put an asterisk beside this one. It lost 16.5 per cent in 1998, but returned an astounding 43.7 per cent in 2001 and 39.3 per cent in 2002.
In the global equity fund category, some defensive standouts include:
- Trimark Fund: This fund has struggled recently, but its credentials as a defensive star are well established. Example: It lost 5.6 per cent in 2002, while the average loss from global equity funds was an excruciating 20.1 per cent. Global funds also lost money on average in 2001 and 2003, but the Trimark Fund was in the black both years.
- Templeton Global Smaller Companies: This fund has a good safety record, as seen in the fact that its worst annual performances in the past 15 years was a loss of 0.7 per cent in 2002 and an uncharacteristic 2.3-per-cent drop in last year's strong market for global funds. Its better-known sibling, Templeton Growth, lost money in each of 2000, 2002 and 2003.
- Mackenzie Cundill Value: Not a bulletproof fund - it lost 13.8 per cent in 2002 and 10.7 per cent in 1998 - but one that mixes good years and bad years and ends up with great overall returns. Example: It averaged 9.3 per cent a year for the past five years, while the average global equity fund was just miserable in losing an average 0.08 per cent per year.
Even defensive specialists get scored on once in a while, so don't for a moment imagine that you're putting yourself in a protective bubble by investing in any of these funds. Still, there's a lot to be said for funds that have met the bear in the past and come out the encounter with a bearskin rug.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.
Back to top