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Leading North American fund loaded with 'big, boring' dividend stocks

Market Analyze

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What are we looking for?

How North American equity funds have fared over three years.

The screen

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We ranked funds in this group by the best performers. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

A cash-heavy fund with some short bets leading the three-year pack.

Aston Hill Capital Growth, which has been run since late 2010 by manager Jeffrey Burchell of Aston Hill Asset Management Inc., has gained an annualized 18.4-per-cent return. It was formerly a closed-end fund called Tax Optimized Return Oriented Securities Trust whose assets were rolled into a mutual fund in mid-2011.

Mr. Burchell, a manager with hedge-fund firm Polar Securities Inc. before joining Aston Hill, said the North American equity fund aims to be a lower-risk, go-anywhere investment that can own small to large-cap companies. When markets sold off over the past couple of years, "there has been minimal to no drawdowns," he said.

The lower volatility has stemmed from the ability of the fund to do limited short-selling (up to 20 per cent of assets) to make bearish bets or as a hedging strategy. The fund typically has large cash balances, which have ranged from a low of 25 per cent to a high of 68 per cent in April, 2012. Cash is now about 30 per cent of the fund.

The fund, which is focused on U.S. securities, has been helped by playing the U.S. housing recovery through homebuilders although Mr. Burchell no longer owns those stocks. However, he still holds home improvement retailer Home Depot Inc., as well as consumer discretionary stocks such as Starbucks Corp.

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Mr. Burchell, also co-chief investment officer of Aston Hill, doesn't follow one investment style, but tries to figure out what is working in the market. "The vast majority of the fund is now invested in big, boring, old-fashioned mega-cap stocks that pay a dividend," he said. The names include Kraft Foods Group Inc. and Delphi Automotive PLC.

He is now shorting oil through a U.S.-listed exchange-traded fund called United States Oil Fund LP because he sees rising supply from U.S. shale oil production. He is also bearish on commodities generally because of slower Chinese growth. "Buying commodity stocks now is like trying to bottom-fish technology names in 2002," he said, referring to the bursting of the Internet bubble in 2000.

Mr. Burchell remains upbeat on the U.S. market even though he expects a pullback on the back of an extended rally. "We are in a bull market, and it would not surprise me if we get a big move [ higher, greater than 20 per cent] in 2013 or 2014," he said.

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