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Number Cruncher

How a contrarian move from oil to gold paid off Add to ...

What are we looking for?

How Canadian focused equity funds have fared over five years.

This fund category was created in 2006 after Ottawa scrapped the 30-per-cent foreign content limit. Their managers can invest up to 50 per cent in foreign stocks, allowing them to shop the world to beat the resource-heavy S&P/TSX Total Return Index. (Their personal benchmarks may differ.)

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The screen

We screened for the best and worst performers over five years to March 31. U.S. dollar, segregated, pooled and duplicate versions of funds were excluded.

What did we find?

A dynamic duo of funds at the top of the class.

David Taylor runs Dynamic Canadian Value Class and Dynamic Value Fund of Canada, which respectively, posted annualized returns of 7.7 per cent and 7.5 per cent. These funds, which are 80-per-cent invested in the same stocks, were among four that beat the index's 6-per-cent gain.

He attributes his success to his use of cash, big sector bets and being contrarian by buying cheap stocks with potential catalysts. "If you want to be No. 1, you can't build a portfolio that looks like everybody else," said the manager with Goodman & Co. Investment Counsel Ltd.

By the time the stock market crashed in late 2008, he had already boosted cash to 20 per cent. That helped cushion the blow. But his funds benefited from the strong rebound because he had put all his cash to work as the market was bottoming in March, 2009.

Still, Mr. Taylor's best move came when he slashed his energy weighting that year to 11 per cent versus 30 per cent for the index. It was a contrarian move as oil was then trading at $145 (U.S.) a barrel, and some analysts predicted the commodity would keep soaring to $200. Instead, he bought "very cheap" gold stocks when that metal was trading around $500 an ounce compared with $1,500 today.

He bought names such as Osisko Mining, Eldorado Gold, Tahoe Resources and also Andean Resources, which has been taken over by Goldcorp. "I bought gold and silver [stocks]when everybody was madly in love with and only cared about oil," he recalled.

While his foreign content has fluctuated between 15 and 35 per cent, most of his funds' gains over five years ironically have come from Canadian stocks. "But my foreign content has gone up to 25 per cent now because I have sold into this resource rally," he said.

So what's he buying now? U.S. names such as Consol Energy, Arch Coal and Bank of America, Mr. Taylor said.

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