The Year to December 31, 2003

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 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, 2003.

Simple annual returns are just that: the return for the fund for that particular year. Compound annual returns show the geometric 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. It is a separate matter to compare the fund performance to a relevant index, which is the benchmark active mutual fund managers attempt to outperform.

CANADIAN EQUITY MUTUAL FUNDS

Simple Annual Returns for Years:
Canadian Equity
Compound Annual Returns
Fund 2003 2002 2001 2000 1999 3 yrs. 5 yrs. 10 yrs.
% %
Bissett Canadian 15.5 -8.9 3.8 19.7 7.6 3.78 7.56 11.35
Ivy Canadian 8.7 -4.7 2.5 20.4 3.1 1.99 5.66 9.55
CI Canadian 22.1 -16.9 -5.0 13.4 26.0 -1.20 6.62 7.75
TD Cdn. Value 21.6 -8.6 0.5 6.3 14.1 3.84 6.31 8.43
Trimark Cdn. 21.4 -10.1 4.5 16.9 16.7 4.49 9.25 8.26
Universal Future 22.7 -20.3 -7.6 -0.8 48.7 -3.36 5.89 8.62
Cdn Money Market 2.0 1.6 3.6 4.5 3.9 2.4 3.1 3.7
Canadian Bond Funds 4.9 6.3 5.9 8.6 -2.6 5.9 4.8 6.4

The national business news reports provide 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 Bissett 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 two 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 two superior funds above and think about which one would yield more peace of mind for you year-by-year.

INTERNATIONAL EQUITY MUTUAL FUNDS

Simple Annual Returns for Years:
Global Equity
Compound Annual Returns
Fund 2003 2002 2001 2000 1999 3 yrs. 5 yrs. 10 yrs.
Foreign: %
AGF Int’l Value 11.3 -23.7 0.8 27.8 17.0 -5.05 5.05 n/a
CI European Growth 6.6 -30.3 -20.4 1.8 30.6 -16.04 -4.68 n/a
Dynamic Euro. Value 13.9 -19.0 -13.6 -13.5 21.2 -7.28 -3.53 6.01
Fidelity Euro. 7.6 -27.8 -12.8 -7.7 9.8 -12.14 -7.22 5.73
Fidelity Int’l Port. 10.6 -19.6 -10.2 -9.5 20.5 -7.21 -2.71 6.64
HSBC Euro. 13.2 -17.7 -15.2 -6.8 29.8 -7.75 -0.91 n/a
Mawer World 9.7 -11.3 -10.0 -6.0 41.6 -4.33 3.12 7.15
Saxon World 25.1 -2.9 13.0 -5.0 21.9 11.12 9.71 10.05
Templeton Growth 14.0 -20.1 -0.7 -0.8 21.1 -3.31 1.65 6.02
Templeton Int’l Stock 12.1 -24.1 -12.6 -0.6 21.4 -9.39 -2.13 4.91
Trimark Fund 7.7 -5.6 10.1 12.6 15.5 3.84 7.81 10.71

In previous issues of Foresight, we introduced you to Exchange-Traded Funds (ETFs). ETFs are passively managed funds that track indices and have significantly lower annual management fees compared to mutual funds. Many track broad geographic indices (like the US, Europe, Japan and Emerging Markets) while others track industry sectors (like technology, health or banking,) or small, medium and large companies (in Canada and the US).

We are continuing to assess individual mutual fund performance against the relevant ETF. In the past year, some have been dropped from our list and others have been added. Our portfolios are evolving to a blend of direct stock holdings, rigidly-tested mutual funds and ETFs. We are including foreign ETFs along with mutual funds in our international geographic analysis of portfolios. Unlike mutual funds, we are better able to break down the dollar value of money invested in broad-index ETFs into the various industrial sectors and include them in your sector analysis along with direct sector holdings.

This provides us with more insight into the risk exposure of portfolios to the various industrial sectors and allows us to effectively adjust portfolio weightings in the sectors.