3 aggressive Canadian equity funds for the risk taker

You might say successful investing is easy. All you have to do is buy low and sell high. But how you do that is more of a problem. What’s more, sometimes when a fund is low, it stays that way for a long time. Here are three Canadian equity funds that are low, but that we think will recover.

These three Canadian mutual funds’ performance has seen them lose value over the past year. Consequently, we think all three of them are better buys than they were a year ago. All three of them invest in riskier market segments. Two of them invest heavily in Canadian small caps, while the third has exposure to emerging markets. Canadian small-caps, particularly in the energy sector, have had a tough time since last summer.

Franklin Bissett Canadian High Dividend Fund (Fund codes: TML205 (FE), TML (DSC), TML522 (LL)) has been around since 2000, and has produced a respectable compound annual growth rate of 9.1 per cent since then.

Energy sector sets back this Canadian equity fund

Over the past year, however, the fund has lost 22.6 per cent, thanks largely to the downturn in the energy sector. The magnitude of this setback has hurt the fund’s longer term results. For example, its latest 10-year annualized return of 5.0 per cent ranks in the third-quartile of the Canadian small/mid-cap equity fund category. A year ago around this time, the fund had a 10-year record of 9.1 per cent, which was a second-quartile performance in the category.

Despite the impact of soft energy markets on the fund’s performance, management remains committed to the energy space. The portfolio currently holds about 34 per cent in energy, 32 per cent in financials, 14 per cent in industrials and seven per cent in materials. Overall, the fund has just over 40 per cent of its assets invested in natural resources.

Franklin Bissett Canadian High Dividend Fund is definitely down, but there’s no reason to fear this fund. It’s likely to make a startling comeback, assuming a rebound in energy prices.

Canadian small cap mutual fund is well balanced

IA Clarington Canadian Small Cap Fund (Fund codes: CCM520 (FE), CCM521 (DSC), CCM975 (LL)) stands out among similar funds. The fund boasts a 15-year compound annual growth rate of 12.6 per cent, a performance that ranks it third among 36 funds in the Canadian small/mid-cap equity fund category. But this past year, it lost 1.2 per cent.

We think Clarington Canadian Small Cap Fund will likely return to a better record as small-cap stock markets improve. The portfolio is well balanced among industry groups, with about 22 per cent in financials, 19 per cent in industrials, and 17 per cent in energy.

Clarington Small Cap is less volatile than the Bissett fund mentioned above. It invests in higher-quality companies in the small-cap sector. But it’s still an aggressive fund whose objective is to maximize long-term growth. We think its record of success makes it attractive for a turnaround.

Be patient with emerging markets mutual funds

Our third pick for recovery is Brandes Emerging Markets Equity Fund (Fund codes: BIP171 (FE), BIP271 (DSC), BIP213 (LL)). The fund, of course, concentrates its investments in emerging markets. Currently, it holds 18 per cent of its portfolio in Brazil, 16 per cent in South Korea, nine per cent in Russia, eight per cent in each of China and Hong Kong, and six per cent in Turkey.

Emerging markets will be a growth story for decades to come as developing countries continue to catch up to the developed world. Though gross domestic product growth has flagged in China, that country continues to grow faster than developed economies, and will likely continue to do so for the foreseeable future. Patience is required when you invest in emerging markets, however, as they will continue to be volatile.

This emerging markets equity fund has declined 0.6 per cent over the past 12 months, a particularly unfavorable performance in light of the fact that the average fund in the category gained 10.5 per cent over the same period. We suspect, however, that Brandes’ contrarian value investment style of investing in out-of-favor markets such as Brazil and Russia will eventually pay off.

These three funds may not bounce back tomorrow, but if you want to buy low, all three are lower than they were a year ago. What’s more, we think they’ll all give you a chance to sell high. But if you’re inclined to suffer from insomnia, don’t overweight your portfolio in any of them. 


Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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