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WHAT ARE WE LOOKING FOR? Financial stocks used to be a reliable way to add some horsepower to a fund portfolio, but today the word to describe them is horse … well, never mind. Some fund managers have been smart enough to minimize their exposure to financials lately and today we zero in on them. TODAY's SEARCH All funds in the major Canadian equity categories were thrown into the hopper and ranked according to the smallness of their portfolio weighting in financials. To see how well this contrary stance has worked out - remember, financials account for about 28 per cent of the S&P/TSX composite index - we have listed each fund's one-year quartile placement. Quartiles divide funds in a category by their returns into four groups, with first quartile being the best and fourth the worst. Five-year quartile data is provided for a longer-term perspective. SO WHAT DID WE TURN UP? Take a look at the five-year quartile numbers, and then the one-year data. Notice that some funds have jumped up a quartile or two? Here, you clearly see the benefit of going easy on financial stocks at a time when the sector is struggling with exposure to those nasty U.S. subprime mortgages. In fact, financials are the third-worst-performing sector on the TSX this year, behind info tech and consumer discretionary (both small sectors in Canada). Okay, so a manager was smart enough to limit exposure to banks and such. What other sectors is he or she buying instead? If the answer is mining and energy, it's good news for unitholders. Prime example: Power Canadian Growth. With about 57 per cent of its assets invested in those ever popular commodity stocks, this fund has turned in some ridiculously good numbers in the past one- and five-year periods. TD Canadian Equity is in a similar position, although it still counted two big banks among its Top 10 holdings. And then there are the funds that took a different approach to allocating assets that might otherwise have gone into financials. Ivy Canadian is big into consumer staples, consumer discretionary and industrial stocks, none of which anybody is too excited about these days.

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