News and resources for Canada's top financial advisors
Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(01/26/05)
Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(01/26/05)
Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(01/26/05)
 |
(January 26, 2005) Small cap mutual funds don’t get a lot of attention, but they can add value to an investment portfolio, according to FundMonitor.com.
Analysts Anthony Corona and Aaron Brown ran a quantitative screen on all Canadian small cap equity funds and published the results in a recent online report.
“There can be a lot to gain from investing in small caps over the long run,” the report found. “Since many small-cap names are not well known to the market as a whole, they don’t get a great deal of analyst coverage. Hence, interest in such stocks can be limited and their prices may not fully reflect the future potential of the firm.”
Corona and Brown say that by using fundamental analysis, keen investment managers should be able to find “lesser-known gems and earn handsome profits as the market realizes the fair value of these companies.”
Still, the analysts concede that investing in small firms can be risky, with concerns over liquidity and competition against larger, more established companies.
“Small-cap investing has tremendous payoff potential but a heightened level of risk,” the report concludes. “This is why we feel that a well-diversified small cap fund can add value to your portfolio. Professional management should have the ability to properly research the small cap environment and make sure you get the small companies with the best prospects.”
But diversification is key, the analysts add. “We wouldn’t suggest any investor take too large a position in small caps, but for growth-oriented investors with a long investment horizon, we don’t think they should be ignored,” the report says.
“One other thing to be aware of is that if a small cap fund gets too big, the manager may be forced to add some larger companies to the portfolio as the small-cap opportunities become tapped out. Some small-cap funds close themselves to new investment to mitigate this problem.”
And that trend has been more prevalent of late, making decent small cap funds harder for advisors to find, with several capped to new investors — including two on FundMonitor.com’s top 10 list — and more recently, the Northwest Specialty Equity Fund and Mawer’s New Canada Fund.
Starting with the entire Canadian universe of small cap equity funds, FundMonitor.com then excluded hedge funds, sector-specific funds, and funds with average market caps greater than $400 million. Funds that didn’t have at least 3 years of available history were also left out, leaving about 100 funds. Only 10 funds passed the analysts’ screening tests, which included a FundMonitor.com rating of at least 3.5 stars and above median performance over a 12-month period at least 65% of the time.
The top performers (in alphabetical order) were:
Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(01/26/05)
|
(January 26, 2005) Small cap mutual funds don’t get a lot of attention, but they can add value to an investment portfolio, according to FundMonitor.com.
Analysts Anthony Corona and Aaron Brown ran a quantitative screen on all Canadian small cap equity funds and published the results in a recent online report.
“There can be a lot to gain from investing in small caps over the long run,” the report found. “Since many small-cap names are not well known to the market as a whole, they don’t get a great deal of analyst coverage. Hence, interest in such stocks can be limited and their prices may not fully reflect the future potential of the firm.”
Corona and Brown say that by using fundamental analysis, keen investment managers should be able to find “lesser-known gems and earn handsome profits as the market realizes the fair value of these companies.”
Still, the analysts concede that investing in small firms can be risky, with concerns over liquidity and competition against larger, more established companies.
“Small-cap investing has tremendous payoff potential but a heightened level of risk,” the report concludes. “This is why we feel that a well-diversified small cap fund can add value to your portfolio. Professional management should have the ability to properly research the small cap environment and make sure you get the small companies with the best prospects.”
But diversification is key, the analysts add. “We wouldn’t suggest any investor take too large a position in small caps, but for growth-oriented investors with a long investment horizon, we don’t think they should be ignored,” the report says.
“One other thing to be aware of is that if a small cap fund gets too big, the manager may be forced to add some larger companies to the portfolio as the small-cap opportunities become tapped out. Some small-cap funds close themselves to new investment to mitigate this problem.”
And that trend has been more prevalent of late, making decent small cap funds harder for advisors to find, with several capped to new investors — including two on FundMonitor.com’s top 10 list — and more recently, the Northwest Specialty Equity Fund and Mawer’s New Canada Fund.
Starting with the entire Canadian universe of small cap equity funds, FundMonitor.com then excluded hedge funds, sector-specific funds, and funds with average market caps greater than $400 million. Funds that didn’t have at least 3 years of available history were also left out, leaving about 100 funds. Only 10 funds passed the analysts’ screening tests, which included a FundMonitor.com rating of at least 3.5 stars and above median performance over a 12-month period at least 65% of the time.
The top performers (in alphabetical order) were:
Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(01/26/05)
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