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Mutual Funds That Have Outperformed the Overall Market
by Marco Consoli
Mutual Funds are not regarded as exotic or "new and exciting" investment vehicles, now that ETF's (Exchange traded Funds) have come to the investment scene recently. In fact, mutual fundsare often times deemed as "boring" and "long term" investments. To say this would be speaking in very general terms because there are higher risk mutual funds available on the market. in fact, people who have them have been richly rewarded recently (since the lows of March).
Since March, the TSX composite index has experienced subliminal growth (about 53%). Not bad at all considering it has only taken about 8 months to achieve this feat. Now, not all sectors have experienced this substantial growyth, in fact, only a handful of sectors are responsible for the reversal from March. These sectors include:
-Banks
- Oil Industry
- Natural Resources
- Technology
These four sectors are largely responsible for the growth that has taken place and many professional advisors and analysts are expecting these same sectors to continue this growth out of the recession. Now, in order to access how to capture some of this growth we will turn our attention towards long-term trends while also focusing on the growth that has already taken place these past 8 months; I would like to look at the following mutual funds:
- Investors Canadian Natural Resource Fund
-IG Mackenzie Emerging Market Fund
The Canadian Natural Resource fund has outperformed the market significantly, as it has gained 71% since March compared to the markets 50%. This is largely due to the fact that the oil industry was grossly oversold and undervalued throughout last year and metals and oil related companies have rebounded since March.
The Emerging Market Fund has also experienced significant growth, about 30%. No it has not outperformed the broad market but 30% is nothing to sneeze at. Emerging Markets are growing at a much faster rate than any of the other developed economies in North America and Europe. Known as the BRIC (Brazil, Russia, China and India) the four fastest growing economies of the world is very significant, why, because these countries represent almost a third of the world's population. They will have a very big impact on the markets for a long period to come.
These two funds will also be able to sustain their high growth (maybe not the 70% and 30%, but still well over 10%) in relation to the broad market for a number of reasons. Here are some:
- The U.S dollar's demise in value
The U.S continues to try to spend its weay out of the recession. As a result, their debt has grown astronomically. As a result, they will experience very high inflation in the future (the next 5-10 years) The resource sector has a direct corelation to the inflation rate, as metal, mining and oil companies will add this inflation to their pricing and pass it on to the consumer. The Natural Resource Fund will benefit enormously from this trend.
Also, because of this impending sky rocketing inflation rate U.S investors will be looking abroad to invest as much of their returns will be diluted because of inflation. Instead they will look at the Emerging economies for much higher gorwth than in their domestic economy. The Emerging Market Fund will benefit from this trend.
- The emerging market's appetite for resources
The emerging markets require many raw resources both for consumption in the form of oil (the populations of India and China are buying cars and driving them like never before) as well as for infrastructure (steel, iron ore, copper...) for their developing economies.As is evident, both the Natural resource fund and the Emerging Market Fund will continue to see significant growth in the future.
-The U.S government still has about 70-80% of their stimulas money to spend
Infrastructure is one of the key areas where the governement has allocated a significant amount of its stimulus budget towards. And because of the fact that a lot of this money that has not been spent yet means that there is future growth on the horizon for the Natural Resource Fund as it contains a lot of mining/metal companies.
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In conclusion, both of these funds are not without risk and can be regarded as highly volatile. (The resource fund was down almost 50% during last year's recession). But, if you have the stomach, patience and the temperament for it, these two funds can reward you very handsomely over the next coming years.
Outperforming Mutual Funds - Bloomberg
Report and analysis by Courtney Donohoe of Bloomberg News (Starting Bell)
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