Choosing mutua

AS AN investor, choosing the
appropriate mutual fund can
be a problem: Where do you
begin when there are more
than 600 mutual funds. sold
in Canada, to choose from?

By Gerald Fussell
Contributing Writer

By exploring the possibilities
and deciding exactly what goals
the investor has in mind, the
choices can be narrowed to a few.
some of which are cligible for tax
shelters like Registered Retirement
Savings Plans.

While there are no guaranteed
techniques for picking a top per-
former in the mutual fund field,
there are a number of trends the
investor should examine before
making an investment decision.

Past performance is one of the
best ways to judge a fund.
Although past performance
doesn't always accurately reflect
the way a fund will perform in the
future, it will reveal how a fund
performed under particular market
conditions.

For example, some funds might
perforin well in strong, active mar-
kets but not fare so well when the
market takes a downturn.

An excellent too} for examining
the various funds and their perfor-
mance records is the newspaper.
The Globe & Mail, The Financial
Post and The Financial Times of
Canada publish surveys of mutual
funds performance on a monthly
basis.

Another method of researching
the funds is to use the various
databases that can be accessed
through your computer modem or
at a public Jibrary. There are a
number of organizations. such as
Infuglobe and Infomart-Online,
that specialize in financial
research.

Another question investors face
is asking themselves what is more

- important. short-term or long-term
performance. Many financial pro-
fessionals consider mutual funds
to be Jong-term investments. But
investors should also examine the
fund's current performance as it
may reveal some changes that
could conceivably cause an
investor to change or reconsider
their investment.

For example, a well-established
fund with a long and proven

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record may begin to fall behind
competing funds in a market that
is recovering from a crash.

ft may be difficult for the aver-
age investor to ascertain why the
fund has taken a turn for the
worse, despite all the research
tools at your disposal, The answer
might lie in the fund's quarterly
report or with an independent
mutual fund specialist or stock
broker who tracks the performance
of the particular fund.

While measuring the returns of
comparable funds, an investor
should also examine their risks,
such as how stable the fund is.
Technically speaking, this is
known as volatility.

The Financial Times’ survey
measures volatility in two ways.
The first, called standard devia-
tion, shows the relative volatility
of monthly rates of return.

For example, gold funds have
high volatility figures while
money market funds have lower

funds

ones. The second measure is per-
centage figure that ranks by
volatility within groups of funds.
For example. gold fuads tend to
have high percentage figures while
balanced, equity and income funds
have low percentage figures.
When making a decision about
long-term investment between two
funds with similar performance
levels, you should choose the one
with the lower volatility figure.

Performance consistency is the
key when choosing a mutual fund.

When a fund does well each

ear and outperforms the majority

in bad times, then it's the best bet
an investor has. It proves that
studying the past performance of a
fund is as close an investor can get
to predicting future performance
of the funds of their choice.

Gerald Fussell is an investment
adviser with the investment firm,
Odlum Brown Limited. Any ques-
tions or comments can be directed
to him at 1-800-667-1448,

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