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Financial funds advance as U.S. reform fears subside

Michael McCloskey/iStockphoto

Financial services equity funds rose to the top of the performance heap in March after investor concerns over tough U.S. financial reform subsided and bank stocks in Canada also rallied strongly.

The group rose an average of 6.1 per cent last month, led by AIC American Advantage with a gain of 7.9 per cent (11.8 per cent in its U.S.-dollar version). The BMO S&P/TSX Equal Weighted Banks Index exchanged-traded fund rose 7.4 per cent.

In the United States, financial services stocks continued their climb last month from late February.

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The sector had taken a beating earlier on concerns about the potential impact of tough new financial services proposals. One proposition, which has been dubbed the "Volker rule," is designed to limit proprietary trading and increase government supervision and powers.

"I call it the fear around overreaching and inappropriate financial reform," Greg Placidi, co-manager of AIC American Advantage, said yesterday.

"One by one, the bear argument started going away.

"It looked like financial reform was not going to be as draconian as originally thought," and the Volker rule wasn't suddenly going to be implemented and destroy Goldman Sachs and Morgan Stanley overnight, he said.

But AIC American Advantage did well did in March because of an overweight position in U.S. life insurance stocks, he said. MetLife Inc., Hartford Financial Services Inc. and Prudential Financial Inc., which represent 18 per cent of the fund, were big movers.

Because Canada has posted strong economic growth numbers recently, the domestic banks have been a way for foreign investors to play this country, Mr. Placidi said.

"Canadian banks have had a lot of demand on their shares."

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Top fund classes for March

Group Average for all asset classes as of March 31, 2010

Group Avg.

Group Avg.

Top 5

1 mo. return

YTD return

Financial Services Equity

6.1%

2.4%

Emerging Markets Equity

5.3%

0.1%

Canadian Dividend and Income Equity

4.0%

3.8%

Asia Pacific ex-Japan Equity

4.0%

-1.7%

Global Small/Mid Cap Equity

3.8%

2.2%

Bottom 5

Global Fixed Income

-2.2%

-1.1%

Canadian Short Term Fixed Income

-0.7%

0.3%

Canadian Fixed Income

-0.6%

1.2%

Canadian Long Term Fixed Income

-0.2%

2.5%

U.S. Money Market

0.0%

0.0%

Average for all funds regardless of asset class

2.2%

1.5%

S&P 500 Composite ($ Cdn)

2.2%

1.8%

S&P/TSX Small Cap

3.2%

4.2%

S&P/TSX Total Return

3.8%

3.1%

Source: Globe Investor

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