Gold, energy the top contrarian comeback categories in 2016

By Brian Bridger, CFA, FRM
June 21, 2016

So far, 2016 has been a dream come true for contrarian investors. The worst-performing fund categories from 2015 are outperforming their counterparts by a wide margin. If you had simply invested equally in the 10 worst-performing categories from 2015, you would be up close to 13% as of May 31. This easily beats the average return for all categories of just 2.4% year to date (YTD). Alternatively, if you had continued to chase the winning categories from last year and invested equally in the 10 best performers from 2015, you would have lost over 4% so far this year. Here’s a look at who’s on top in the contrarian comeback list among the Canadian Investment Funds Standards Committee fund categories.

At the top of the list is Precious Metals Equity. These funds are up an average of 62.0% in the first five months of 2016. Last year the average loss was -8.4%. Another standout category is Energy Equity. This category was left for dead with oil dipping below $30 a barrel earlier this year but has since rebounded, and the average fund is now up 18.6% YTD. In 2015 these funds lost over a quarter of their value on average.

Let’s take a look at a few top performing funds from these categories that have earned a Fundata FundGrade™ A grade as of May 31, 2016.

Dynamic Precious Metals Fund Series A (DYN046) has been around since 1984 and has been managed by Robert Cohen of 1832 Asset Management LP since 2000. Year to date this fund is up 67.3%, second highest in the category. Over the past 12 months it is the top-performing Precious Metals Equity fund, with a return of 57.6%, more than 20% higher than its closest rival. Over the past three years this fund is also the top performer by a wide margin, with an average annual compound rate of return of 19.5%. Compare this with the average Precious Metals Equity fund at 5.5% and the second-best performing fund at 7.8% in the same period.

However, longer term is where this fund truly shines. It ranks second in both 10-year and 20-year compound returns, at 3.6% and 4.3%, respectively. Its 10-year up capture of 2.05 and down capture of 0.99 show that this fund has capitalized during the commodity rallies while becoming more defensive during the bear markets. In addition, the fund has below-average volatility compared with the rest of the category, posting a 3-year annualized standard deviation of 41%.

The fund is actively managed and uses a bottom-up selection process to identify attractive companies. The portfolio is very concentrated, normally holding fewer than 30 stocks, and turnover is high. As of the end of May, the top 10 holdings made up 63% of the portfolio and included names such as Detour Gold Corp., Asanko Gold Inc., and Agnico-Eagle Mines Ltd. Over two thirds of the fund is allocated to Canadian companies.

At 2.66% the MER for the A series is slightly above average compared with its peers. This fund is available in a variety of load options and share classes depending on your situation.

Like the Precious Metals Equity funds, Energy Equity funds have had a rough go the past few years.

And while BMO Global Energy Class Series A (BMO236) is no different, this fund has done a great job of navigating the volatile markets compared with the category benchmark and against its peers. When compared with the S&P/TSX Capped Energy Index TR, BMO Global Energy Class has been able to limit losses in down years and yet capture huge gains in the up years. This is reflected in the fund’s 5-year up capture of 1.38 and down capture of 0.88. This fund has also outperformed against its peer group, which can be seen in its 5-year category batting average of 0.717. This shows that is has outperformed its category average in 71.7 % of months over the past five years.

In the first five months of 2016 this fund has gained 23.2%, second best in the category. And over the past year, it lost only -6.6%, compared with the category average loss of -16.3%. Looking at the 5-year compound return, the fund is the top performer, delivering an average annual compound rate of return of 4.29%, and one of only two funds to be in positive territory over that span. Combine these spectacular returns with average volatility (compared with other Energy Equity funds) and it is no wonder this fund has received a Fundata FundGrade A+™ Award for the past three years.

BMO Global Energy Class debuted in 2008 and is managed by Kyle Hunter and Mark Serdan. Although the fund is marketed as a global fund providing energy and energy-related companies from around the world, this fund is predominantly Canadian. As of mid-March 2016, over 76% of the fund was Canadian equity, around 9% U.S. equity, with the rest held in cash.

The top 10 holdings represented 37.6% of the fund’s holdings and included Crescent Point Energy Corp., Seven Generations Energy Ltd., and Canadian Natural Resources Ltd.

The A series has an MER of 2.6%, slightly higher than average compared with its peers. This fund is also available in various loads and share classes.

Brian Bridger, CFA, FRM, is Vice President, Analytics & Data at Fundata Canada Inc. This article is not intended as personalized investment advice. Investments mentioned are not guaranteed, involve risk of loss, and are subject to commissions.

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