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The best and worst long-haul mutual funds

There's a saying in the investment industry: mutual funds aren't bought, they're sold.

That suggests that the funds being sold to investors aren't necessarily the best funds. Fund companies have a way of pushing their big fee-generating funds by boosting compensation for the investment advisors who sell them, and dressing up returns at the end of each quarter when disclosure is required.

To add insult to injury a good chunk of those fees go toward marketing them to the unsuspecting investor.

But long-term results don't lie. Of the over 2,000 open-ended mutual funds on the market with at least $25 million in assets here are some of the best and worst long-term performers:

Front Street Special Opportunities Canadian Fund

Front Street Capital portfolio manager Normand Lamarche is an unsung superstar in the mutual fund industry. Since joining the company in 1996 his funds have been consistently among the top long-term performers. Over the past 15 years his Front Street Special Opportunities Canadian fund has led the series, posting an average 16 per cent gain each year. Over the same period the average natural resource equity fund returned seven percent.

The Special Opportunities Canadian fund primarily invests in small and mid sized Canadian natural resource companies — not exactly household names. Over half of the fund is invested in oil and natural gas producers.

Investors pay the price for intensive portfolio management. An upfront fee, or front end load, is imposed and the management expense ratio (MER) is 5.4 per cent. That means 5.4 per cent of your investment is deducted annually but for a fund that averages 16 per cent, that's not too shabby.

It's important to note that long-haul mutual funds require a long-term commitment from investors. So far this year the Special Opportunities Canadian fund is down nearly 25 percent, due in part to declining commodity prices — perhaps a good opportunity to buy in.

Normand Lamarche also manages the Front Street Growth fund, which investments in small companies primarily in the Canadian resource sector. The MER is a more modest 2.43 per cent with a front end load, but it has managed to return an average 13 per cent annually for the past 15 years.

RBC Global Precious Metals Fund

Ahrrr, thare's gold in this here fund. Thanks to the meteoric rise in bullion prices stemming from an over-leveraged global economy the RBC Global Precious Metals fund has returned an average 14 per cent annually for the past 15 years, and 16 per cent annually for the past twenty years.

Credit is also due to RBC Global Asset Management portfolio manager Chris Beer for holding the right stocks at the right time. Over the same 15 year period the average precious metals equity fund only averaged an annual return of 8.7 per cent and the Globe Precious Metals Peer Index only advanced 6.8 per cent for the same period.

The RBC Global Precious Metals fund holds common Canadian heavyweight gold producers like Goldcorp and Barrick Gold. The MER is a reasonable 2.14 per cent with no upfront fee.

Manulife Value Fund

If you follow the 15-year performance list down — waaaay down — you will find the Manulife Value fund near the bottom. Investors averaged a loss of three per cent each year over that period.

The pain was even greater for investors who got in ten years ago. If you invested $10,000 in the fund in July 2001 you would be left with $4,620 today — an annual compound loss of 7.4 per cent.

Sure, things have been tough for U.S. equities but the average U.S. equity fund has managed to squeak out a return of 1.7 per cent annually over the same period and even the S&P 500 benchmark index has returned an average 3.24 per cent each year.

As a matter of fact, the fund looks a lot like the S&P 500 with top holdings including Microsoft, Google and Apple. How anyone can manage to lose money in seven of the past 10 years with such a simple mandate is a mystery.

For the pleasure of all those losses investors pay a higher-than average annual MER of 2.51 per cent on the amount invested, plus a trading expense ratio of 0.19 per cent, plus a front-end or back-end load if it is sold within six years.

TD International Value Fund

The rock bottom 15-year performer is another value fund — although it's not much of a value if you lose an average 3.2 per cent each year. The TD International Value Fund — I tracks the MSCI Europe Asia and Far East Index, which advanced an average two per cent annually over the same period. Even the average international equity fund returned 1.3 per cent annually.

The fees have been slightly less painful than the Manulife Value fund. For the pleasure of loosing all that money investors have only had to pay TD Asset Management a 2.55 per cent MER with no front or back end load.