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
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,
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 email@example.com.