April 2011 - I Like Your (mutual fund) Style!
 Hemant
Misir, CGA
Financial Advisor
Dundee Private Investors Inc.
141 Brunel Road, Suite 100, Missisauga,
ON L4Z 1X3
Telephone: (905) 712-8444 Ext. 231 |
Cell: (416) 930-4996
hmisir@dundeewealth.com |
hmisir.dundeewealth.com
Could
your mutual fund portfolio benefit
from a little more style?
Management style,
that is. Diversifying your fund
portfolio by a
variety of management styles lets you
take advantage of a wider range of investment
potential and could possibly give
your portfolio
an added performance edge.
Here’s what adding style to your fund
portfolio can do for you.
Try a new basket for your eggs
Fund managers become disciples of a certain
style because they believe it works. In
reality, different styles
tend to outperform others
depending on the economic climate at
different financial market junctures.
Consider the two most popular equity
styles: growth and value. Growth
significantly outperformed value during the
late 1990s, until the 2000 stock market
crash. Then value took over, outperforming
for much of the next decade. However,
growth has been making a comeback over
the past couple of years (see chart). Over
the long term, many experts believe
value outperforms growth. Other experts
believe the opposite. What causes one style
to outperform another is a constant topic of
debate in the financial world. As an
investor, it makes sense to diversify
through a variety of disciplines, rather than
picking one or trying to be a “style
switcher,” moving money in
and out of different funds
as they go in and out of favour. It’s also
important to consider that some styles entail
more risk than others — another good reason
for style diversification. But
which is which?
But how do you know which style a fund
follows? Sometimes it’s obvious from the
fund name — for example “growth fund”
or “value fund.” Sometimes you need to
dig through fund information to determine
which style a fund follows. Some funds may
not follow any particular style at all.
There are many management styles,
particularly when it comes to equity
mutual funds. Here’s a primer:
Growth: Investing in companies that have
experienced or are expected to experience
quickly growing sales and profits.
Value: Investing in businesses whose share
prices appear undervalued relative to their
peers, but which have appreciation potential.
Bottom-up: Focusing on individual
companies’ financials — usually referred
to as “fundamentals” — instead of the
overall economic or financial market
picture. This is also sometimes called
fundamental investing. Top-down:
Analyzing general economic
conditions and determining which
countries and industry sectors will benefit.
Individual investments are selected from
within those countries and sectors. The
bottom line? Different styles have
different strengths at different times.
Diversifying among them can add strength
to your mutual fund investments. We can
assist you to explore this diversification
strategy and show you how it can benefit
your mutual fund portfolio. |
