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Rob Carrick

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The Best Performance by a Mutual Fund in a Bear Market

Rob Carrick


And the nominees for the award going to the mutual fund that stood tallest against the great bear market of 2008 are:

And the winner is…Ivy Foreign Equity. In a year for the stock markets that will live in infamy, this unassuming global equity fund lost 6.95 per cent. In comparison to the 31.8-per-cent drop by the average global equity fund, this performance is flat-out brilliant.

Remember the month of October 2008, and how global stock markets looked as if they would fall all the way to zero. Ivy Foreign Equity lost 0.05 per cent that month, while the average for its peers was 11.3 per cent. How can one fund survive a market cataclysm so much better than the competition?

To start with, just over 1 per cent of the fund was exposed to the hard-hit financial sector, while 45 per cent was in a pair of classic defensive sectors, consumer staples and health care. Also, 15 per cent of the fund was in cash, a bulwark against falling markets and a resource to be deployed in snapping up quality stocks that fell in price.

For a couple of reasons, global equity funds, particularly ones with heavy U.S. exposure have been just pathetic on the whole in the past decade. A period of meteoric improvement in the Canadian dollar undercut returns prices in other currencies, and then there was the commodity boom that favoured resource-heavy markets like Canada above others. Yet for the 15 years to Dec. 31, coming off a catastrophically bad year, Ivy Foreign Equity had made an average annual return of 6.8 per cent. That's four times better than the average global equity fund.

We shouldn't get too carried away in praising Ivy Foreign Equity. In a go-go bull market, it's quite likely going to lag the competition. You can see this in the way it ranked in the third or fourth quartile of global equity funds for the four years from 2003-2006. And yet, those investors who stuck it out during that lean period have been rewarded with superb results during the most difficult period for the markets that most investors have ever seen.

So let's say that Ivy Foreign Equity deserves the award for standing tallest against the bear market not only because it lost less money than most, but also because it taught investors a valuable lesson about patience and greed. It took a while for this fund to come into its own, but when it did it was worth the wait.

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

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