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Mutual funds get high marks for performance

WHILE Toronto likes to hog the limelight as Canada's financial centre, never let it be said that Vancouver can't compete.

WHILE Toronto likes to hog the limelight as Canada's financial centre, never let it be said that Vancouver can't compete.

Two Vancouver-based funds were acknowledged as among the best of the best in the west, winning an annual Fundata FundGrade A+ Rating for mutual funds.

The annual FundGrade A+ Rating builds on the already popular FundGrade rating system by singling out funds that have been able to keep a consistently high FundGrade throughout the calendar year. Two high-performing Vancouver-based mutual funds demonstrated what it takes to be considered right up there with the best of the best in 2012.

Pender Small Cap Opportunities Fund: This fund had a banner year in 2012. With a calendar year return of 31.3 per cent, compared with a return of -0.5 per cent for the S&P/TSX Capped Composite Total Return Index, it's easy to see why this fund earned a FundGrade A+ award for 2012. The fund's impressive calendar year return ranked second among its peers in the Canadian Small/Mid Cap Equity category, which posted an average return of 5.7 per cent. Managed by David Barr, who is also Pender's chief investment officer, the fund takes a value-investing approach, looking for well-managed small-cap businesses that are overlooked by the market and have the potential for significant capital appreciation.

The relatively small portfolio of 35 holdings includes names like QHR Technologies Inc., a healthcare technology supplier, Absolute Software Corp., a security management software provider, and Redline Communications Group Inc., a holdings company with several subsidiaries in the communications industry.

The fund also takes on only a relatively small amount of risk to achieve its impressive returns. Three-year annualized standard deviation (a measure of a fund's volatility) is 13.0 per cent compared with an average 15.0 per cent for the category.

Steadyhand Equity Fund: This fund has become one of the top performing and most consistent funds in the Canadian Focused Equity category. In 2012, the fund gained 15.6 per cent, one of the highest calendar returns in the category. Remarkably, this outperformance has come with lower-than-average volatility.

Earning 8.3 per cent on a three-year average compound return basis, the fund significantly outperformed the Canadian Focused Equity average of 2.4 per cent, while limiting volatility to a standard deviation of just 10.0 per cent, much lower than the 11.6 per cent category average. In five-year performance, the Steadyhand Equity Fund was one of only a few funds that did not lose money. It managed a gain of 1.6 per cent during the period, despite dropping more than 27 per cent in 2008.

Ted Ecclestone of CGOV Asset Management manages the fund for Steadyhand. He invests in companies of all sizes, seeking profitable, well-managed businesses with a sustainable competitive advantage. The portfolio is very concentrated, with only about 20 to 25 holdings at any given time. The majority of the fund is invested in Canadian equities, with top holdings that

include Toronto-Dominion Bank, Crescent Point Energy Corp., and Suncor Energy Inc.

Reid Baker is manager of Analytics and Data at Fundata Canada Inc., and chairman of the Canadian Investment Funds Standards Committee.

Brian Bridger, CFA, FRM, is director of Analytics and Data at Fundata Canada Inc. and a member of the Canadian Investment Funds Standards Committee. Provided courtesy of Fund Library, owned and operated by Fundata Canada.