Oh boy, we finally get to release our investment returns.  The markets having been so...well...interesting.  We’ve been busting to get the numbers out.

You may remember that until we renewed our prospectus, we weren’t allowed to provide fund returns to non-clients.  With that behind us and the first quarter of 2008 in the books, we’re now able to post our funds’ performance.

Below I have provided some color on the numbers, but as you’d expect, I must warn you that one-year returns (both good and bad) have very little interpretive value.  A one-year number in the context of a longer period, however, is informative and on that note, we can provide longer-term returns for our equity managers for those who are interested.   

With that warning label firmly attached, here are some comments on the Steadyhand funds’ first year.

Income Fund

The fund returned 1.2% for the year ending March 31st.  Over the period, the fund paid quarterly distributions totaling $0.47 (4.7% of the March 31, 2007 unit value). 

The fund is designed with a bias towards corporate bonds and also holds income equities (business & utility trusts, and real estate investment trusts).  As a result, the fund was impacted by the weak U.S. economy and worldwide credit crisis.  The prices for corporate bonds were pushed down (and the yields up) due to their higher perceived risk in relation to risk-free government bonds.  Bonds from companies in the financial sector were particularly hard hit. 

The other side of the market dislocation is the fact that the Income Fund is now yielding 6.4% (pre-fee) and is well positioned to benefit from a stabilization in the credit markets.  While the manager of the fund, Connor, Clark & Lunn, was too early in adding to the fund’s corporate bond holdings, they remain confident that these securities represent great value and will reward patient investors. 

Equity Fund

The Equity Fund was down 1.7% for the year.  This performance came in the context of the S&P/TSX Composite Index gaining 4% and the MSCI World Index losing 14%.  The latter return was strongly influenced by the weak U.S. dollar.

Roughly 40% of the fund’s assets are invested outside of Canada, and it was this foreign exposure that hurt the fund’s performance the most. 

Many of the fund’s ‘franchise’ companies fared well over the period, and the portfolio’s mix of growth and value stocks served as a good balance in a market that had little direction.  While we don’t like to see negative returns, the fund certainly held its ground considering its notable foreign content.

Global Equity Fund

It was a tough year for equity investors to venture outside of Canada and the Global Equity Fund’s return reflects that.  It was down 18.1% over the year.  Not pretty, but not out of line with the significant declines in European, Asian and the U.S. markets. 

The greatest negative impact on the fund was its exposure to housing-related and financial stocks.  The fund’s manager, Edinburgh Partners Limited (EPL), has been cautiously adding to its holdings in the financial sector, as they feel that there’s now so much bad news built into the share prices of many of these stocks that the reward/risk trade-off is looking very compelling. 

The fund’s positioning in sectors that are typically defensive stalwarts, notably health care and telecom, didn’t help it over the year.  Many stocks in these sectors were beaten up, particularly in recent months.  Yet, EPL is seeing a lot of value in these industries and has maintained the fund’s exposure to leading companies such as Novartis, Sanofi, SK Telecom and Vodafone.

Small-Cap Equity Fund

The Small-Cap fund got off to a great start.  It gained 10.5% over the past year in a rough environment for small caps. 

As can be expected, the fund was noticeably out of synch with the overall market.  There were plenty of days when the market was down and the fund was up, and vice versa.  All said, the manager, Wil Wutherich, owned a lot more winners than losers.  Wil’s unconstrained, style-agnostic approach allows him to take large positions in the businesses that he most wants to own and this approach served the fund well.

While we expect this fund to deliver market-beating returns over the long-term, investors should be prepared for periods of greater volatility than the one just passed, given the nature of the small-cap market.