Five large-cap bank-run fund buys

These five large mutual funds — one from each of Canada’s big-five banks — suffered last year and early this year. That’s because they were heavily weighted toward financial services and resource stocks. However, many shares in those sectors have moved up since March. We think they have room to go higher.

We still feel that the best way to profit in the stock market is to stick with high-quality, well-established companies and to spread your money out among the five sectors. You should also ensure that your investments are diversified within each sector.

These five funds continue to stick with high-quality investments. However, you still should adjust your portfolio to reflect the funds’ high weightings in certain sectors.

BMO EQUITY FUND $23.74 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ontario, M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) mostly invests in blue-chip Canadian companies. The fund’s managers choose stocks to buy based on their analysis of the outlook for the industry the firms operate in, as well as their earnings records, management strength and growth potential.

The $1.7-billion BMO Equity Fund’s 10 largest holdings are Bank of Nova Scotia, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Natural Resources, Suncor Energy, EnCana Corporation, Barrick Gold, Manulife Financial, CIBC and Research in Motion.

The fund holds 40.0% of its portfolio in the resource sector. Its next-largest segment is financial services, at 30.9%.

Over the last 10 years, BMO Equity posted a 6.7% annual rate of return, slightly better than the S&P/TSX’s 6.5%. The fund lost 15.5% over the past year, compared to a loss of 17.7% for the S&P/TSX. BMO Equity’s MER is 2.28%.

BMO Equity Fund is a buy.

TD CANADIAN EQUITY FUND $21.81 (CWA Rating: Conservative) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-866-222-3456; Web site: www.tdcanadatrust.ca. No load — deal directly with the bank) uses a “bottom-up” approach to pick stocks. The fund’s managers look at fundamentals, like earnings, cash flow and debt level, to identify what they see as undervalued companies.

TD Canadian Equity Fund’s 10 largest holdings are Royal Bank, TD Bank, Manulife Financial, Bank of Nova Scotia, Canadian Natural Resources, Sun Life Financial, Suncor Energy, Ivanhoe Mines, EnCana Corp. and Research in Motion.

The $2.5-billion fund holds 49.0% of its portfolio in resource stocks. It also has a bias toward financial services stocks, at 32.1%.

TD Canadian Equity returned 6.5% annually over the 10 years to July 31, 2009, equaling the S&P/-TSX. The fund lost 28.4% over the past year, compared to a loss of 17.7% for the S&P/TSX. TD Canadian Equity’s MER is 2.07%.

TD Canadian Equity Fund is a buy.

RBC CANADIAN EQUITY FUND $21.21 (CWA Rating: Conservative) (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario. M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) mainly invests in larger-capitalization stocks, but may also buy small- and mid-cap stocks.

The $4.2-billion fund’s largest holdings are Royal Bank, Manulife, EnCana, TD Bank, Goldcorp, Bank of Nova Scotia, Canadian Natural Resources, Suncor Energy and Research in Motion. The fund is heavily weighted (44.9%) toward the resource sector; 33.2% of its investments are in finance.

Over the last 10 years, RBC Canadian Equity posted a 6.7% annual rate of return. That’s just over the S&P/TSX’s 6.5% gain. The fund lost 19.9% over the last year, compared to a loss of 17.7% for the S&P/TSX. The fund’s MER is 1.96%.

RBC Canadian Equity Fund is a buy.

CIBC CANADIAN EQUITY FUND $19.69 (CWA Rating: Conservative) (CIBC Securities, 5140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7. 1-800-631-7008; Web site: www.cibc.com. No load — deal directly with the bank) looks at fundamentals like earnings, cash flow and debt level to identify companies that the managers see as having above-average growth potential.

The $399.3-million fund’s top holdings are: Royal Bank of Canada, EnCana, Research in Motion, Bank of Nova Scotia, CN Railway, Goldcorp, TD Bank, Canadian Natural Resources and Manulife Financial.

CIBC Canadian Equity holds 41.8% of its portfolio in resource stocks and 34.6% in finance stocks.

The fund’s 10-year annualized return is 2.5%, compared to 6.5% for the S&P/TSX. CIBC Canadian Equity lost 20.8% over the last year, compared to a loss of 17.7% for the S&P/TSX. The fund has a 2.21% MER.

CIBC Canadian Equity Fund is a buy.

SCOTIA CANADIAN GROWTH FUND $47.00 (CWA Rating: Conservative) (Scotia Securities, 40 King Street West, 6th Floor, Toronto, Ontario M5H 1H1. 1-800-268-9269; Web site: www.scotiabank.com. No load — deal directly with the bank) attempts to use an investment’s fundamentals to determine whether it has the potential for above-average growth.

The $394.5-million Scotia Canadian Growth Fund’s largest stock holdings include Royal Bank, TD Bank, Potash Corp., Canadian Natural Resources, Canadian National Railway, Bank of Nova Scotia, Crescent Point Energy and Manulife Financial.

Scotia Canadian Growth holds 43.3% of its portfolio in the resource sector. Its next-largest segment is financial services, at 27.9%.

Over the last 10 years, Scotia Canadian Growth posted a 3.7% annual rate of return. That’s less than the S&P/TSX’s 6.5%. The fund lost 23.6% over the past year, compared to a loss of 17.7% for the S&P/TSX. The fund’s MER is 2.09%.

Scotia Canadian Growth Fund is a buy.