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Mutual fund giant bullish on Canada

Mutual fund giant bullish on Canada

Fidelity's advice a refreshing change from 'go global'
Jonathan Chevreau, Financial Post / Published: Thursday, November 15, 2007

Ever since the 30% foreign content limit was lifted on pensions and RRSPs, the siren call from Canada's mutual fund industry has been "go global."

But in the two and a half years since the limit was lifted, the Canadian dollar has leapt to multi-decade highs. As a result, those who "went global" from the get-go have suffered currency losses - severe ones in the case of those who "rebalanced" their portfolios from Canada into the United States.

Certainly, several advisor road shows I have attended at AIM Trimark Investments and Franklin Templeton were pushing global investments and urging Canadians to take at least partial profits from Canada. You know the arguments: Canada makes up only 3% or 4% of global stock markets and three quarters of the TSX composite index is concentrated in just three economic sectors (energy, materials and financials).

So it's a refreshing if belated change to see the world's largest fund company - Fidelity Investments - banging the drum for Canada. Subsidiary Fidelity Investments Canada began a road show last week just as the loonie briefly hit $1.10 against the U.S dollar. Mutual fund giant bullish on Canada

At the version I attended on Wednesday in Toronto, chief investment officer Bob Haber was intent on getting advisors to focus clients back into Canadian equities. The title of the talk was "Go Canada," delivered appropriately enough in the Canadian ballroom at the Royal York hotel.

Haber touched on many familiar themes BMO Financial Group global strategist Don Coxe has been highlighting for some time. That's the rise of China and India with Canada in the sweet spot for supplying them the commodities they need (both fuel and food).

Fidelity says the Canada story has been evident at least since 2002. "We know for sure Canada was by far the best developed market," Haber said. "The question is will this revert to the mean or is there an underlying trend that will perpetuate it into the future?"

Haber believes the Canada story will hold up for the foreseeable future. The good news for those already heavy in local stocks is that Haber's views seem to be shared by the Fidelity organization worldwide. Since he works out of Fidelity's head office in Boston and it emphasizes a "team" approach to stock-picking, this has to be regarded as bullish for Canada.

Mind you, Fidelity Canada hasn't dusted off its "go global" theme altogether. The other featured speaker on the road tour is senior vice-president Chris Goudie, who seemed almost apologetic about his topic. He began by reassuring those hapless souls who already went global that "this is not the time to capitulate."

As for those who haven't yet invested overseas "it's worthy of consideration." Like most of its rivals, Fidelity does not hedge foreign currency exposure for the equity funds it sells Canadians.

Unlike Templeton, which sees value in U.S. large caps, American equities were conspicuously absent from Goudie's go-global pitch. He showed an overhead of an asset class chart similar to the one Templeton publishes.

Despite the strong returns from Canadian equities, he reminded investors some other markets have done better - like emerging markets the last three years in a row - even in Canadian dollar terms.

Asia ex-Japan has returned 30.5% the last three years and 21.4% the last five compared to just 21% racked up Canadian equities in both time periods.

The big theme that will be in place for decades is the massive move of rural Chinese and Indians to the cities. Their per capita gross domestic product is expected to soar and with it demand for food, oil and brand-name goods.

Given their huge populations, Fidelity doesn't see this theme disappearing anytime soon, which means the Canada story should endure.

Goudie says China has built 200 new cities in the last decade, and 200 to 400 more will be added in the next decade.

Haber was asked which sectors in Canada he'd avoid with the loonie so high. He said Fidelity has analyzed currency impact for each public Canadian company it considers. The effect may be muted if they're commodity-sensitive stocks but he'd avoid Canadian manufacturers that export heavily into the United States.

Financial Post
jchevreau@nationalpost.com

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