Investment News
The primary culprit of all this market volatility
is news of more financial institutions taking big
hits from debt rooted in the U.S. mortgage sector.
Many shares in financial companies – which
have declined by more than 20% in 2007 – continued
their decline in 2008. Although it sometimes
appears that things are a little gloomy for the overall
economy, we would argue that a significant and substantial
amount of bad news has been built into the market
prices – thereby providing investors with some
good medium- to long-term investment opportunities.
In addition, the Fed has cut interest rates by 1.25%
in January, and the Fed’s bias is likely to
remain one of stimulating growth rather than restraining
inflation. We see a similar pattern in Canada,
although the Canadian economy is much stronger than
the U.S. economy. In short, investing during
periods of negative perception is usually a more
fruitful investment strategy than investing when
stock markets are at their respective highs. However,
caution is warranted as stocks will likely swing
in either direction in the short term.
The Fund has a large bias towards investing in small- to medium-sized companies
and, to a lesser degree, income-producing investments. In turn, the Fund
is not highly correlated to the S&P/TSX because it does not own the same
investments. The S&P/TSX decreased in value by almost 5.00%, but the
BMO NB Small Cap Index was down 7.10% for the month.
We believe investing in small-to-mid cap stocks instead of a large-cap stock
is a very prudent investment strategy. During the previous 10 years (ending
December), the very best Canadian Equity fund in Canada generated a 10.5% rate
of return. The median Canadian small-to-mid cap manager also generated
a return of 10.5%. The BMO Nesbitt Burns Small Cap Index generated a return
of 9.7%, which is better than over 85% of the large-cap managers (not to mention
the Sceptre Equity Growth Fund, which generated a 15.3% annualized return). We
believe it’s easier to pick an asset class than a star manager and the
best large-cap manager did not outperform a median small-cap manager – we
want to benefit from this ‘small-cap effect.’ We acknowledge
that from time to time – and especially during periods of market volatility – large
caps will outperform small-to-mid caps in the short term. However, over time
we know that reducing our traditional large-cap exposure in favour of small-to-mid
caps will add value.
Going forward, we expect to see the stock market stuck between a rock and a hard
place in the near term (1-2 months) and improving longer term (8-10 months) as
companies rebuild their creditability with investors and resume their growth
(at least for most companies). However, with higher than average levels
of volatility, we expect bargain hunters to come back into the market and buy
good companies at temporarily depressed prices. We also expect higher
commodity prices to support the resource rich Canadian stock market.
| FUND PERFORMANCE |
|
ASSETS |
| 3 Months |
(11.68%) |
| 6 Months |
(12.02%) |
| 1 Year |
(0.28%) |
| 3 Years |
11.39% |
Since Inception
|
9.95% |
GlobeFund posted returns for Series C7
as at January 31, 2008. |
|
|
$45,663,778
|
|
