Safiya Burton, Contributor
Burton
IN RECENT articles, I have attempted to articulate the benefits and risks associated with investing in mutual funds, and how mutual funds can enable average investors to accomplish many of their financial dreams.
However, many Jamaicans are still uncertain about the ins and outs of this relatively new investment option, and, hence, I have decided to launch the first in a series of articles entitled, 'Mutual Funds In Focus'.
In this series, I will attempt to dissect specific funds in order to empower investors with the requisite knowledge in order to make informed investment decisions.
I will kick off the series with the CI Canadian Investment Fund, the fund whose lead portfolio manager, Kim Shannon, received the prestigious Morningstar Fund Manager of the Year award for 2005 at the Canadian Investment awards gala in November 2005.
What is the CI Canadian Investment Fund ('the Fund')?
One of Canada's oldest mutual funds, the Fund was started in November 1932.
Its objective is to achieve long-term capital appreciation by investing primarily in the shares of major Canadian corporations.
Since inception, it has returned, on average, in excess of nine per cent per annum.
As of May 2, its holdings included primarily financial stocks (for example, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal) and energy or energy-related stocks (Shell Canada, Canadian Oil Sands Trust, and Petro-Canada).
Its net asset value per unit (NAV or price per unit) was Cdn$25.59.
Who is Kim Shannon?
She is the president and chief investment officer and founder of Toronto-based Sionna Investment Managers Inc.
She has an MBA from the University of Toronto, is a CFA charter holder, and has over 20 years of experience in the investment industry. Shannon has been managing the CI Canadian Investment Fund since 1996.
The secret to Shannon's approach is that she seeks companies that trade at statistically cheap prices while exhibiting the ability to generate high and sustainable cash flows.
Morningstar Canada Analysts' Report
The analysts at Morningstar Canada, the organisation that assigns ratings to all mutual funds in Canada, examine a variety of factors including the risk versus return ratios, tax efficiency, turnover rates, and fund performance relative to industry benchmarks.
According to the analysts' report, the Fund received its prestigious five-star rating for a number of reasons, including but not limited to:
The fund's management expense ratio, or MER, of 2.38 per cent is lower than that of nearly 75 per cent of its peers.
Risk-adjusted returns have been easily in the top quartile and well into the top decile over the long run.
Under Shannon, this fund has never experienced a loss over any two-year period. The shortest period for which the benchmark can make a similar claim is six years.
Performance for first quarter 2006
According to a portfolio management commentary from Sionna Investment Managers dated March 31, "The Canadian equity market continued its roll during the first quarter of the year which saw the S&P/TSX Composite Index post a total return of 7.97 per cent."
However, as indicated by the fund managers, the "CI Canadian Investment Fund recorded a quarterly return of 6.7 per cent."
Historically, this is typical of Shannon's track record. She does reasonably well in bull markets (i.e. when markets exhibit positive, upward trends) and extremely well in bear markets (i.e. when markets exhibit negative downward trends).
Of course, past performance is no guarantee of future returns.
Safiya Burton is an assistant vice-president at First Global Financial Services Limited and GK Funds Management (Cayman) Limited.
For further information on investing in mutual funds,
please email her at safiya.burton@gkco.com.
