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Canadian equity funds that zoomed past benchmark in 2012

Stefan Schurr/Getty Images/iStockphoto

Editor's note: Leith Wheeler Canadian Equity gained 13.6 per cent in 2012 and an annualized 7.1 per cent for three years. It was the fifth-best performing Canadian equity fund last year. Incorrect information appeared in an earlier version of this column. The correct table is attached to the bottom of this article and the text has been corrected.

What are we looking for?

Index beaters among Canadian equity funds in 2012.

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The screen

We ranked the top 15 performers in this category to find funds that raced ahead of the S&P/TSX Total Return Index. U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

The leaders outpaced the benchmark's 7.2-per-cent gain by a wide margin.

Among the best performers was value-oriented fund Leith Wheeler Canadian Equity, which is run by a five-person team.

It gained 13.6 per cent last year, and also beat the index over three, five and 10 years. Helped by a lower fee than many peers, it was among more than 40 per cent of funds whose returns pulled ahead of the resource and financial-heavy benchmark last year. The index beaters also included exchange-traded funds such as BMO Low Volatility Canadian Equity ETF, up 13.9 per cent.

For the Leith Wheeler fund, 2012 was "a bit of an unusual year because we were beneficiaries of three premium takeouts of our companies," said Michael Schaab, a portfolio manager at Leith Wheeler Investment Counsel Ltd. Progress Energy Resources Corp. was bought by Malaysian state-owned Petronas; Miranda Technologies Inc. was purchased by Belden Inc., and Astral Media Inc. is in the throes of a takeover by BCE Inc.

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The fund was also helped by being significantly underweight the struggling materials sector in 2012. Instead, it owns other names like Canadian National Railway Co., which gives indirect exposure to materials, but also to other parts of the Canadian economy.

Without the takeovers, the Leith Wheeler fund's return would have been closer to 11 per cent. Other return contributors included WestJet Airlines Ltd. and also Gilden Activewear Inc., where "the easy money has been made" as the apparel maker benefited from lower cotton prices, Mr. Schaab noted. "We also didn't own Research In Motion, SNC-Lavalin or some of the hiccups of last year."

Mr. Schaab, meanwhile, expects global growth to be "tepid" this year at around 2 per cent amid concerns over everything from China's slowdown to Europe's debt woes. "The problems of the world don't always impact every business that you want to own," he said. "Over the next three years, I wouldn't be surprised if we had high single-digit returns [annualized] in the equity market."

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