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Number Cruncher

Winning smaller-cap funds: A 20-year perspective Add to ...

What are we looking for?

How the senior citizens among Canadian smaller-cap stock funds stack up over two decades.

The screen

We searched for the top 15 funds over the 20 years ended Feb. 28. This group includes funds that can invest up to 50 per cent in foreign stocks. U.S. dollar, segregated, pooled and duplicate versions of funds were excluded.

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What did we find?

Front Street Growth at the head of the pack with an average annual return over 20 years of 21.9 per cent.

Keep in mind that many funds will have had more than one person at the helm over their history. That means the long-term record may not reflect the current manager's performance.

Interestingly, Front Street Capital manager Normand Lamarche, who has overseen Front Street Growth since 1999, has matched the fund's two-decade old performance with his 10-year annualized return of 22.2 per cent. His resource-heavy fund got a lift from a 130-per-cent gain in 2009 amid a stock market rebounding from the carnage of the previous year.

The fund's 20-year record has also benefited from an eye-popping 159-per-cent return in 1993. It was then called Multiple Opportunities Fund and managed by Channing Buckland, who focused on junior resource stocks on the former Vancouver Stock Exchange (now Canadian Venture Exchange).

A few funds have had the same managers since inception. Francis Chou still runs Chou RRSP, which has posted an annualized 11-per-cent return. And veteran Irwin Michael keeps plugging along with his ABC Fundamental Value and ABC Fully Managed funds, which have garnered annualized returns of 13.9 per cent and 9.8 per cent, respectively.

Mr. Michael, a deep-value investor, said his go-anywhere funds fall into the small-cap category because that is where he has been finding bargains. They even own some larger-company stocks such as Genworth MI Canada Inc. and Daylight Energy Ltd.

On occasion, some funds can dramatically change their stripes. While the ABC Fully Managed fund is now in the Canadian small-cap category, it has historically been a Canadian balanced fund. Recently, Mr. Michael slashed his bond exposure to 6 per cent, while equities are now 75 per cent. "We are like a chameleon," he said. "We go wherever we find value. ... The moment we find stocks expensive and bonds cheap, we are going to go back to 75- or 80-per-cent bonds."

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