WHAT ARE WE LOOKING FOR?
Canadian equity balanced funds at the top of the performance chart in 2009.
Balanced funds, which own stocks and bonds, have been hot sellers as markets have rebounded. Canadian equity balanced funds must have at least 60 per cent in equities.
TODAY'S SEARCH
We screened for the top 30 funds in this category last year. U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded as well as those with less than a one-year track record.
WHAT DID WE FIND?
A few balanced funds surprisingly outpaced the S&P/TSX Total Return of 35 per cent. Let's look under the hood at their strategies.
Investors Canadian Balanced Fund, which was 70-per-cent invested in equities, led the pack with a 45.6-per-cent gain.
The stellar return was fuelled by focusing on economically sensitive sectors like energy, materials and U.S. deep cyclicals like United States Steel Corp., Dow Chemical Co. and Alcoa Inc. "We have been riding the recovery," said fund manager Dom Grestroni.
Base metals giant Teck Resources Ltd. "has probably been the top performer in the fund," he added.
The fund has sold all but a small position in one Canadian bank, and shifted to asset managers, life insurers and U.S. retail banks within the financial sector, Mr. Grestroni said.
On the fixed-income side, the fund is invested mainly in short-term government bonds. "We are concerned about rising interest rates," he added.
Edgepoint Canadian Growth & Portfolio, co-managed by Tye Bousada and Geoff MacDonald, came second with a 40.4-per-cent return.
But they took a different strategy, investing in corporate instead of government bonds. "We did not see the rationale of putting clients' money to work owning pieces of paper only yielding 2 to 3 per cent," Mr. MacDonald said.
After the meltdown, "if you thought the world was not coming to an end, there was an incredible buying opportunity," he said.
The fund was 68- to 70-per-cent invested in stocks last year. Communications company TVA Group Inc., and private equity firm Onex Corp. contributed to performance. The managers try to buy businesses that can double their size over five to seven years, but do so at a "value price," Mr. Bousada said.
During last year's market volatility and economic downturn, some managers might have taken comfort in buying defensive stocks like grocery, telecommunications or pharmaceutical and health-care companies, he said.
"Whenever everyone is doing the same thing in the equity markets, it's usually a recipe to lose money. …We looked for different ideas."