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Progress report 

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.

Clarington Canadian Income (good call)

In December 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.

Small Caps (thumbs up)

As noted last week, I made several recommendations to overweight small cap funds - the last of which was detailed in a January 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.

Overseas stocks (not so good)

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.

Hard assets (good move)

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.

Bonds (not bad)

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.

RRSP picks (so-so)

In two February 2002 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.

Summary

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, CFA, CFP is the President of Dan Hallett and Associates Inc., an independent investment research firm based in Windsor, Ontario. Dan can be reached at dha@danhallett.com.

 

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