The year to December 31, 2002

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 on the following page, 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, 2002.

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, as compared to its peer group.

Canadian Funds

Simple Annual Returns for Years:
Canadian Equity
Compound Annual Returns
Fund 2002 2001 2000 1999 1998 3 yrs. 5 yrs. 10 yrs.
% %
Bissett Canadian -8.9 3.8 19.7 7.6 0.1 4.6 4.2 12.8
Ivy Canadian -4.7 2.5 20.4 3.1 5.7 5.5 5.1 9.8
CI Canadian -16.9 -5.0 13.4 26.0 -4.0 -3.6 1.6 9.5
TD Cdn. Value -8.6 0.5 6.3 14.1 -8.9 -0.8 0.3 n/a
Trimark Cdn. -10.1 4.5 16.9 16.7 -4.1 3.2 4.2 9.6
Universal Future -20.3 -7.6 -0.8 48.7 5.9 -10.0 2.8 11.1
Cdn Money Market 1.6 3.6 4.5 3.9 4.0 3.2 3.5 3.9
Canadian Bond Funds 6.3 5.9 8.6 -2.6 7.5 9.0 6.9 8.9

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 two of the five years in the five year compounding period. The relatively superior performance for the other three years was sufficient to produce 5-year compound success.

Notice that three 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 three superior funds above and think about which one would yield you more peace of mind for you year-by-year.

International Funds

Simple Annual Returns for Years:
Global Equity
Compound Annual Returns
Fund 2002 2001 2000 1999 1998 3 yrs. 5 yrs. 10 yrs.
Global: %
AGF Int’l Value -23.7 0.8 27.8 17.0 20.9 -0.6 6.8 n/a
BPI Global -26.9 -21.7 -13.7 43.0 32.2 -21.0 -1.4 6.9
CI Global -19.4 -26.6 -3.9 37.1 26.2 -17.2 -0.4 6.6
Fidelity Int’l Port. -19.6 -10.2 -9.5 20.5 24.6 -13.2 -0.4 8.8
Templeton Growth -20.1 -0.7 -0.8 21.1 0.6 -7.7 -0.8 7.9
Templeton Int’l Stock -24.1 -12.6 -0.6 21.4 8.1 -13.0 -2.8 7.9
Trimark Fund -5.6 10.1 12.6 15.5 6.4 5.4 7.6 13.0
Europe:
Dynamic Euro. Value -19.0 -13.6 -13.5 21.2 20.4 -15.4 -2.5 7.5
Fidelity Euro. -27.8 -12.8 -7.7 9.8 31.3 -16.5 -3.5 8.0
HSBC Euro. -17.7 -15.2 -6.8 29.8 42.2 -13.4 3.7 n/a
CI European Growth -30.3 -20.4 1.8 30.6 26.6 -17.3 -1.3 n/a
United States:
AGF Amer. Growth -30.8 -18.5 -14.6 20.8 59.8 -21.1 -1.5 8.6
CI Amer. Growth -27.7 -31.6 -18.2 65.3 40.2 -26.0 -1.3 9.2

Internationally, you can see precisely the point about investing styles. Trimark Fund was the only one with superior performance across all compounding periods; however, it under-performed for both 1998 and 1999, a time when “value” investing was not in vogue.

These tables report the relative performance of the funds as compared to their peer group. The statistical expression, “regression to the mean” comes to bear here and says that it is difficult for a fund manager to stay perennially on top. It is a separate matter to compare the fund performance to a relevant index, or benchmark. In fact, most funds do not compare favourably to their indices over time.

In the Winter 2002 issue of Foresight, we introduced you to Exchange-Traded Funds (ETFs), which are low-MER passive index-based mutual funds. There is US$140 billion invested in 280 ETFs trading world-wide, 16 of them in Canada and 116 in the U.S. Many track broad geographic indices while others track industry sectors, like technology, health or banking, or small, medium and large companies.

Presently, we are assessing individual fund performance against the relevant indices and MERs. Our portfolios are evolving to a blend of direct holdings, rigidly-tested mutual funds and low-MER ETFs for the broad-market plus industry, and region, specific ones, as suitable to your circumstances.