Evaluating
this column’s advice
Over this
past year, I have dispensed a lot of advice. This week, I’ll have a little fun
and revisit my recommendations of the past year or so, and bring readers up to
date as to how you would have fared had you acted on my suggestions.
On December
14, 2001 I wrote an article
stating that this fund’s targeted monthly distribution would fall. While there
are other similar funds, I singled this one out because it is the oldest and
largest of the breed.
Assuming
full reinvestment of distribution, this fund lost 8.4 per cent for the first
eleven months of 2002 – ranking it 337 out of 464 balanced funds. And when it
was apparent that the unit price was going to remain anchored south of $9 for
awhile, Clarington announced a distribution cut. As of August 31, 2002 this
fund reduced its monthly distribution from 8 cents to 6 cents per unit.
As noted
last week, I made several recommendations to overweight small cap funds – the
last of which was detailed in this
January 11, 2002 column. That article contained four fund recommendations,
which were the top four of a list of eight funds noted in a more detailed memo
to our firm’s advisors just a week earlier.
My list of
eight funds posted an average return of 8 per cent for the first eleven months
of 2002; compared to returns of minus 6 per cent and minus 7 per cent during
the same period for the BMO-Nesbitt Burns Small Cap Index and the median
Canadian small cap fund, respectively. Also, each of the recommended funds
outpaced both the index and median fund – with returns ranging from minus 5.7
per cent to a gain of 29 per cent.
In that
same January article, I noted that it would be a good time to hold less of your
money in U.S. stocks and more in overseas stocks. My reasoning stemmed from the
valuation gap between U.S. and overseas stocks – much the same reasoning behind
my recommendation just two weeks ago. How did I do on this one?
Well,
overseas stocks lost about 13 per cent versus the 19 per cent loss posted by
U.S. stocks for the first eleven months of 2002. Both figures stink, but I was
kind of right since overseas funds fared better. As for my specific fund picks
in that article, three were broad based funds, posting an average loss of 15
per cent; and one was a European fund shedding 29 per cent of its value for the
first eleven months of 2002.
I continue
to recommend those same overseas stock funds (from Mawer, AGF, and Templeton),
but no longer recommend the Spectrum European Growth – now called CI European
Growth. Performance has nothing to do with my change in tune. The fund has a
new manager and has shed its unique mandate of investing in mid-cap European
stocks. It’s simply not the same fund I once liked.
I
recommended holding a normal weighting in hard asset funds – a recommendation I
reiterated recently. Hard assets – i.e. real estate, natural resources, and
precious metals – are important long-term portfolio components since they often
do well when the broader stock market sags.
A year ago
I recommended five funds, which kicked out an average gain of 30 per cent for
the first eleven months of 2002 – ranging from minus 5 per cent for Dynamic
Global Real Estate to a sizzling gain of 84 per cent for Royal Precious Metals.
A year ago,
I expected that 2002 would be a year of mild economic recovery that would
include a matching rise in interest rates. As a result, I thought it best to
keep overall fixed income exposure the same; but to have greater emphasis on
cash and real return bonds, or RRBs, which generally protect against rising
rates.
While
economic growth fit my description (and surprised most), the interest rate
picture didn’t materialize. Rates started the year on an up trend, but went on
a steady fall through the spring and summer. Nonetheless, my recommendations
turned out okay.
The
Canadian bond universe returned 6.5 per cent for the first eleven months of the
year; compared to more than 10 per cent for real return bonds and about 2 per
cent for cash. Overall, a combination of the three would have averaged out to a
return close to simply holding a diversified portfolio of bonds anyway.
In two
articles – RRSP
Ideas and More
RRSP Ideas – I outlined numerous individual funds to consider for RRSP
contributions. There are far too many individual funds to go through (34) in
one column. To summarize, fully 85 per cent of my picks beat out more than half
of their respective competitors (i.e. first or second quartile performance).
Overall, not bad, but I give myself a ‘so-so’ grade because many of the funds
(mostly stock funds) lost money from the end of February through to the end of
November, 2002.
Overall,
four out of the six general recommendations worked out well – pretty good. Even
with that, it’s a good thing I don’t make my living timing financial markets.
It’s important for me to remind readers that my advice is seldom meant to be a
short-term timing decision. Sometimes it works out that way but it’s not my
intent. So, why do I evaluate my advice over a one-year period (or less)? Well,
because I may not be writing in this space in five or ten years. So, I’ll leave
the longer-term evaluation to all of you.
Dan Hallett, B.Comm., CFP, CFA is the Senior
Investment Analyst with Sterling Mutuals Inc. He can be reached at dhallett@sterlingmutuals.com Sterling Mutuals Inc. is registered as a
mutual fund dealer in Ontario, British Columbia, Alberta, and Manitoba.