The year to December 31, 2001

Equity markets are volatile by nature and returns can vary significantly year from year. This can been seen quite readily by looking at the returns of Equity Mutual Funds over time.

Listed below are Canadian Equity Mutual Funds and following, Foreign Equity Mutual Funds, that we support. We have shown simple annual returns for the past 5 years and compound annual returns for the past 3, 5 and 10 years as of Dec. 31st, 2001.

Simple annual returns are just that: the return for the fund for that particular year. Compound annual returns show the implied average annual return over a number of years, assuming that any returns over a specified time period were reinvested in more units of the fund. Bold emphasis indicates that the fund performed above average for its category during that time period.

Simple Annual Returns for Years:
Canadian Equity
Compound Annual Returns
Fund 2001 2000 1999 1998 1997 3 yrs. 5 yrs. 10 yrs.
% %
Bissett Canadian 3.8 19.7 7.6 0.1 31.5 10.2 12.0 14.4
Ivy Canadian 2.5 20.4 3.1 5.7 17.6 8.3 9.6 n/a
Spectrum Cdn. -5.0 13.4 26.0 -4.0 13.8 10.7 8.2 12.0
TD Cdn. Value 0.5 6.3 14.1 -8.9 17.2 6.8 5.4 n/a
Trimark Cdn. 4.5 16.9 16.7 -4.1 3.2 12.5 7.1 11.5
Universal Future -7.6 -0.8 48.7 5.9 14.4 10.9 10.5 13.2
TSE 300 Index -14.4 7.6 32.8 -0.4 15.0 7.3 7.0 10.4
Money Market 3.6 4.5 3.9 4.0 2.4 4.1 3.7 4.4

 

The national business papers print the compound statistics every month and the 15 year simple returns every quarter. Both sources of information are useful for the investor who doesn’t like volatility.

Look at Trimark Canadian, for example, in the Canadian equity group. It has been a superior (bold) performer across all compound periods: 3,5,10 years; however, you also see that the simple returns were inferior for three years in a row of the five year compounding period: 1997, 1998 and 1999. Its relative superior performance for the other two years was sufficient to produce 5-year compound success. You will see a similar pattern for Universal Future which attained 5-year compound success largely on the strength of one huge year: 1999.

Notice that four of the six funds shown achieved superior performance across all three compound periods, but none achieved superior performance in every single simple period. Such is the nature of mutual fund investing and stock-picking — the experts call this “regression towards the mean (average)”.

The tricky lesson is not to “punish” and bail out of your fund that falls off the pack in a particular year or two because the investment climate of the day favours a different investment style, e.g.“growth” vs “value”. On the other hand, if volatility is your nemesis, look at the simple returns of the four superior funds above and think about which one would yield you more peace year-by-year.

Simple Annual Returns for Years:
Global Equity
Compound Annual Returns
Fund 2001 2000 1999 1998 1997 3 yrs. 5 yrs. 10 yrs.
Global: %
AGF Int’l Value 0.8 27.8 17.0 20.9 23.6 14.6 17.6 n/a
BPI Global -21.7 -13.7 43.0 32.2 18.0 -1.1 8.5 10.6
CI Global -26.6 -3.9 37.1 26.2 21.1 -1.1 8.1 10.1
Fidelity Int’l Port. -10.2 -9.5 20.5 24.6 24.1 -0.7 8.7 11.5
Templeton Growth -0.5 -0.8 21.1 0.6 17.1 6.0 7.0 12.0
Templeton Int’l Stock -12.6 -0.6 21.4 8.1 15.9 1.8 5.7 12.2
Trimark Fund 10.1 12.6 15.5 6.4 16.0 12.7 12.1 16.5
Europe:
Dynamic Euro. -13.6 -13.5 21.2 20.4 21.3 -3.3 5.7 9.7
Fidelity Euro. -12.8 -7.7 9.8 31.3 26.2 -4.0 7.9 n/a
HSBC Euro. -15.2 -6.8 29.8 42.2 23.7 0.8 12.5 n/a
Spectrum Euro. -20.4 1.8 30.6 26.6 16.9 1.9 9.4 n/a
United States:
AGF Amer. Growth -18.5 -14.6 20.8 59.8 29.5 -5.6 11.7 14.2
Spec. Amer. Growth -31.6 -18.2 65.3 40.2 23.9 -2.5 10.0 14.9
S & P 500 Index (Cdn. $) -6.5 -6.1 14.8 37.6 39.1 -0.9 12.5 14.3
Money Market 3.6 4.5 3.9 4.0 2.4 4.0 3.7 4.4
Canadian Bond Funds 5.9 8.6 -2.6 7.5 8.3 3.8 5.6 7.4

 

Internationally, you can see precisely the point about investing styles. The two Templeton funds and Trimark were the only ones with superior performance across all compounding periods; however, all three under-performed for both 1998 and 1999, a time when value investing was not in vogue.

In the bigger picture of portfolio allocation between equities and bonds, you will see that (where available) all of the mutual funds shown (with the exception of Dynamic Europe at 9.7%), had double-digit 10 year compound annual returns, compared with 4.4% for the average money market mutual fund and 7.4% for the average bond fund. In a down market, it is easy to be swayed by your recent experience and not look at the longer horizon.