Introduction

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   We’re at the mid-point of 2001, and it hasn’t been an easy time for investors. Still, some people have made profits and there it looks like there may be more opportunities ahead.

In this seventh issue of Investing Today, we’ll look at some areas that offer good profit potential. We also have some new mutual fund ratings that may be of interest and information on a variety of other topics from retirement planning to labour-sponsored funds.

I hope you find something that will help you in your personal decision-making.

PROFIT OPPORTUNITIES

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  With the first half of the year behind us, where should we be looking for profits in the coming months? No one sector stands out, but here are some ideas on which to focus.

Technology. Despite the terrible battering this sector has suffered, some of the stocks are still very expensive. But it’s significant that managers of value mutual funds, who never overpay for anything, are sniffing around the edges, looking for bargains. There are some to be found - we’ve seen one example in our own IWB recommendation of Xplore Technologies (XPL). But it’s a matter of sifting carefully. Focus on companies with quality products, good distribution, top management and, ideally, profits. Celestica (CLS) is one example. Because of the volatility of the high-tech sector, the share price has been bouncing around but this is a top-grade company. Two weeks ago, in our Internet Wealth Builder (IWB) newsletter, we recommended the stock as a buy when the share price on the TSE fell back to $62.35. Celestica closed on June 29 at $77.92 (US$51.50 in New York), a gain of 25% in two weeks. It’s now out of buying range again, but keep an eye on it. If it should fall back to below $65 ($US43), buy more.

Consumer products. Some of these stocks were hard hit by the economic slowdown. But with indications that consumer confidence is on the rise again, we should see some strengthening here. IWB contributing editor Tom Slee’s Canadian Tire (CTR.A) recommendation, which was trading at $22.60 when he reiterated his Buy call on May 21, closed on June 29 at $25.99. We’ll be looking for other likely candidates in this area in the coming weeks.

Oil and gas. Energy stocks and royalty trusts have been hard-hit recently by news of rising inventories and price declines. Some investors have been rushing to take profits, apparently believing that the current cycle is over. We don’t think so. If the U.S. economy does gain strength over the next 6-12 months as expected, demand for oil and natural gas is going to increase, not decrease. Only a recession scenario would change that outlook, and that appears much less likely now than it did six months ago. So we see the current share price drop in this sector as a buying opportunity.

Metals and minerals. There are a lot of undervalued stocks in the mining sector, starting with our IWB pick, Noranda Inc. (NRD). Like energy, this is another sector that stands to benefit from an increase in economic activity. Noranda shares closed on June 29 at $16.19 and are a solid buy at that level. Here again, we’ll be on the watch for more candidates in the coming months.

The Internet Wealth Builder is published weekly and distributed exclusively by e-mail. For membership information and to read a free sample issue, go to: http://www.gordonpape.com/newsletter/iwbnl.cfm

Note that we’re currently running a special summer offer: 13 months of the IWB for the price of 12. Plus, we offer a satisfaction guarantee – if you don’t agree that this is the best Canadian financial newsletter around, cancel within the first month and we’ll refund every cent! How can you go wrong?

NEW FUND RATINGS

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  I've started the process of updating my mutual fund ratings in preparation for the 2002 Buyer's Guide to Mutual Funds, which will be published this fall. As the new fund ratings are completed, they are posted to our On-Line Mutual Funds Database so that subscribers can act on them immediately, without waiting for the book.

Here are some recent changes of interest:

FIDELITY CANADIAN ASSET ALLOCATION FUND $$$$

Manager: Dick Habermann, since inception (Dec. 1994)

Suitability: Core fund for conservative investors. This big $6.3-billion fund operates using a team approach with Dick Habermann as lead manager, along with input from Alan Radlo on the equities side and Jeff Moore on the bond side. The fund was relatively defensive in the first half of 2001, with the fixed-income and cash positions accounting for 44% of total assets. "Neutral" weightings would be 65% stocks, 30% fixed-income and 5% money market, so the managers were clearly concerned about the direction of the equity markets. However, the weightings are constantly monitored and change to reflect market conditions, so check the current weightings if you're considering an investment. The fund's diversified group of stocks is conservatively managed, with many large-cap, dividend-paying issues. The bond portion has average risk. The strategy is working. The five-year average annual return of 13% to May 31/01 is tops in the Canadian Tactical Asset Allocation category. The fund has never lost money in any calendar year, and has a fine AQR (average quartile ranking) of 1.43 over seven years. (1.00 would be perfect, meaning it was always in the top quartile). This is a good Canadian balanced fund for your RRSP or RRIF and we are moving the rating up to $$$$ in recognition of the long-term consistency and low risk.

FIDELITY SMALL-CAP AMERICA FUND $$$$

Manager: James Harmon, since July 2000

Suitability: Aggressive investors.

After three managerial changes in as many years, this fund has taken off under the direction of the new man at the helm, James Harmon. He took over in July 2000 and look what's happened since. In the year to May 31/01, this fund gained more than 60%! No other fund in the category was within shouting distance. Despite this great run, Harmon feels there is a lot more profit potential in the U.S. small-cap market. He particularly likes the prospects for health care and education stocks, which he believes are still undervalued. The portfolio is well balanced -- the top ten names only account for about 23% of the total assets. Risk is about on a par with that of the fund's benchmark index, the Russell 2000. This is not a core holding, but it would be a valuable addition for more aggressive investors who want some exposure to the strong American small-cap market. A US$ denominated version of this fund is also available but there is no RRSP-eligible clone. Rating moves up to $$$$.

FIDELITY INTERNATIONAL PORTFOLIO FUND $$

Manager: Dick Habermann, since March 1993

Suitability: Conservative long-term investors.

This is a good fund that has gone into what we hope is just a temporary slump. Nonetheless, the drop of 11.7% in the year to May 31/01 makes us nervous, since it is below the average for the category. In fact, the fund has been a third-quartile performer over the past 2-1/2 years, and no one should be sanguine about that, least of all manager Dick Habermann. This is one of Fidelity's largest funds, with over $7 billion in assets (including the RRSP-eligible clone). But that asset base is slowly starting to erode, something that Fidelity can't afford to tolerate for long. Long-term results still look good, but fund investors are an impatient lot these days. The fund invests across a broad spectrum of countries and sectors and follows a bottom-up growth-oriented strategy, looking at the strengths and weaknesses of each individual company. As was the case in the previous year, the fund remained overexposed to the U.S. market in the first half of 2001 (54.6%), followed by Japan (10.8%) and the U.K. (9.9%). We are continuing to show this fund on our Recommended List, but we don't have the same degree of confidence we did in the past and we suggest shopping around. We're dropping the rating from $$$$ to $$ while we await a turnaround. A US$ denominated version of this fund is also available.

GGOF GUARDIAN MONTHLY DIVIDEND FUND $$$

Manager: John Priestman, since 1988

Suitability: High-bracket income investors

After being closed for more than five years, this fund was re-opened to investors on Jan. 15/01. That's good news because this is one of the best dividend funds around in terms of cash flow (though not total return). Also, it is a true dividend fund, with the bulk of the portfolio in preferred shares. There are also some royalty trusts in the mix to boost yields. Monthly payout is still 3.5c a unit. Recent returns have been slightly above average for the Dividend Income category. However, keep in mind that capital gains potential is limited because of the large percentage of preferred shares in the portfolio. Because of the tax-advantaged cash flow, units are best held outside a registered plan.

SYNERGY CANADIAN GROWTH CLASS $$$

Manager: Andrew McCreath since inception (Dec. 1997)

Suitability: Aggressive investors

This is Synergy's Canadian growth entry. It's an all-cap fund with stock selection based on expected strong profitability and sustained earnings growth. Top holdings in the first half of 2001 included companies ranging from the little-known (e.g. Baytex Energy, Gilden Activewear) to giants like Bombardier, Petro-Canada, and Royal Bank. Note that almost a quarter of the fund's assets were invested in the Synergy Global Growth Class, to take advantage of the foreign content allowance. Unfortunately, Global Growth hasn't done well recently so this position has been a drag on returns. One year performance to May 31/01 showed a small loss (less than 1%). However, the three-year gain of 10.8% is well above average for the Canadian Equity category and better than many long-term growth fund leaders such as McLean Budden Equity Growth Fund. That makes this fund worthy of a $$$ debut rating.

All told, we've posted more than 50 new entries in the past few weeks, and the pace will accelerate over the summer. If you'd like to keep up with the latest reports on the top fund choices in Canada, you can subscribe to the On-Line Database for $39.95 a year, plus GST. (If you already subscribe to the Internet Wealth Builder or Mutual Funds Update your get a special rate of $24.95 plus GST.) For more information: http://www.gordonpape.com/dem.cfm

PRAISE FOR 6 STEPS TO $1 MILLION

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  My new book, 6 Steps to $1 Million, has been getting some nice compliments. Writing in the National Post, personal finance columnist and author Jonathan Chevreau describes the book as "well written and of value for anyone who's just begun to travel down the million﷓dollar yellow brick road." He goes on to say that "the book's charm is in the personal anecdotes" that are used to make many of the key points.

We’ve also received some kind e-mails from readers. One wrote: "I like the format and it's easy to understand, with practical advice and examples."

Said another: "Your marvellous sense of humour gives the book excellent flavour and it's so magnificently Canadian, well organized, easy to comprehend and so beautifully written, thanks to your journalistic expertise. It is a treasure. . ."

If you’d like to get a feel for the book, we’ve posted an excerpt on our Web site at http://www.gordonpape.com/BookEX.cfm?bkex=bookex3

If you’d like to order a copy at our special 15% off discount, go to http://www.gordonpape.com/bookstore/productdetail.cfm?product_id=277

RETIREMENT INCOME STRATEGIES

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  How should you go about setting an effective investing plan for your retirement savings to combine good cash flow with low risk and tax savings? That’s one of the questions we deal with in this week’s Question & Answer section on our Web site.

Other topics this week include limited partnerships, self-directed plan fees, LIRAs and the sale of a son’s college home. You can also browse our archives for previous answers to any topic of interest to you. Go to: http://www.gordonpape.com/qa.cfm

LABOUR FUNDS ALERT

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  If you plan to invest in any labour-sponsored venture capital funds this year, be very selective or you could be in for a nasty surprise. Listen to the full details on this week’s Mutual Fund Minute. http://www.gordonpape.com/mfm.cfm

MAKING MONEY IN LOUSY MARKETS

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  Some investors are making good profits this year despite the weak stock markets. To find out how they do it, check out Gordon Pape’s latest CBC transcripts at http://www.gordonpape.com/cbcradio/Main.cfm

PASS IT ON

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  Investing Today is a free newsletter, so if you have a friend or relative you think would enjoy reading it, e-mail them a copy.

If you’ve received this as a pass-along and would like to enter your own subscription, go to: http://www.gordonpape.com/InvestingToday/Newsletter.cfm

That’s our July report. We’ll be back again next month. Until then, enjoy the summer.