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Dale Jackson

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Take a summer cruise

Dale Jackson

If you want your investments to cruise through summer - or any time you can't devote a lot of attention to your portfolio - you've got to get cruise control. That means a long-haul mutual fund with a proven record and the ability to smooth out the market's twists and turns. It's not about speed, it's about stability.

That task gets a little more difficult when you consider the growing chorus of economists and market pundits who say we're heading for a hairpin turn. If you want a fund designed to move forward in good times and bad, with the added ability to make the turn from one economic cycle to the next, start by looking at the best 15-year performers.

Not all mutual funds with a strong 15-year track record are right for the job. Most of the funds with the biggest returns over the past decade and a half are heavily weighted toward commodities - normally considered cyclical. In most cases the strongest gains for commodity-based funds have come during the current rally in oil and metals.

As an example Front Street Small Cap Canadian leads the 15-year performers with an average annual return of over 25 per cent. Yet it holds over 83 per cent of its $250-million portfolio in materials and energy. A good part of that 15-year growth period took place over the past three years when the fund posted an average annual return of over 34 per cent. A sharp drop in commodity prices could hit the fund hard - even harder when you consider most holdings are small caps.

A good cruising fund is well diversified, straddles the gaps between cyclical stocks, invests in non-cyclical stocks, and changes gears in time to avoid rapid market shifts.

Funds that could fit the bill include the ABC Fundamental Value Fund. It's a Canadian equity fund with a large weighting in the resource sector and significant holdings in other sectors like financials, consumers and technology.

Over the past 15-years the fund has returned an average 19 per cent annually but if you look at its 18-year history gains are relatively consistent. Over the past five years the fund's performance has matched the S&P/TSX Composite's annual average return of just over 15 per cent. That sort of stability comes at a cost. You need a minimum $150,000 to invest in the fund. Your reward is a reasonable 2 per cent management expense ratio (MER) and no fees when you buy or sell.

ABC Fundamental Value

Another Canadian equity fund with a good 15-year track record, and a mere $500 entry minimum, is Northwest Specialty Growth. The fund has returned an average 15.4 per cent each year and a 12 per cent average gain over the past five years.

Over 25 per cent of the fund is invested in banks and financial services stocks - cherished for their ability to thrive in any market cycle. Holdings are geared toward Quebec blue-chip stocks like Industrial Alliance Insurance and Financial Services and Power Corp.

Consumer stocks in the Northwest Specialty Growth fund include Gildan Activewear, Metro Inc. and RONA Inc. The management fee is 2.28 per cent of the average market value of the amount invested each year. Unit-holders can choose between paying a fee (or load) when the fund is bought or sold. Keep in mind the fee will be higher on the selling end if the fund goes up in value.

The Saxon Stock Fund is another Canadian equity fund that has just over twenty per cent of its holdings in financials and more than a third in energy and materials. It looks much like the TSX Composite Index but has managed to return 15.2 per cent annually for the past 15 years versus 12.2 per cent from the TSX.

The fund requires a minimum initial investment of $5,000, imposes no fee to buy or sell and carries an MER of 1.86 per cent.

Most of the strongest long-term performing Canadian equity funds look like the TSX Composite - with heavy weightings in financials, and energy. However, insightful management has allowed them to outperform the index, even when management fees are factored into the comparison.

One such fund is MB Canadian Equity Growth. With an MER of 1 per cent and no load, it's the grandfather of mutual funds - posting an annual average return of 13.1 per cent since its inception in 1980. Over the past 15 years it has returned 16.1 per cent annually compared with 11.3 per cent from the average Canadian equity fund.

Unfortunately for the average investor, the minimum initial investment for the MB Canadian Equity Growth fund is $1-million, but - as is the case with all high entry funds - you may already own part of it in a pension plan.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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