stanley

In the past, investors bought mutual funds within the “fund families” promoted by fund sellers for a couple of main reasons. Mutual funds within a particular fund family often shared some key investment characteristic, such as a conservative or aggressive investment approach, or a stress on value as opposed to growth. That let investors switch between funds within the family at little or no charge. This way, they could rebalance their portfolios and still maintain a common investment philosophy. But it also encouraged frequent trading. That can cause investors to miss out on some of their biggest gains....

We still think high-quality mutual funds with a long-term focus will beat stock-market indexes over time. If funds invest as we advise — sticking with well-established companies and spreading their assets across the five main economic sectors — they will likely lose a lot less than the indexes during a significant market downturn. That’s because big market slides are particularly hard on the stocks that were the most popular during the preceding rise, and our approach avoids excessive investment in these companies. In contrast, index funds do tend to load up on the hottest, most popular stocks as they rise. That’s because these stocks make up a growing proportion of the index as they increase in value. The most recent example is Potash Corporation of Saskatchewan, which, propelled by soaring fertilizer prices, had the highest market capitalization on the Toronto exchange last June. The shares have since dropped 54%....

ISHARES MCSI CANADA INDEX FUND $20.94 (American Exchange symbol EWC; buy or sell through brokers) is like a market-cap-based index fund, but its managers tinker with the index-fund formula in order to try and improve performance. They do this using their proprietary Morgan Stanley Capital International Canada Index. The U.S.-based fund also has to work around Canadian foreign-ownership restrictions. iShares MCSI Canada Index Fund is managed by Barclays Global Investors and has an MER of 0.52%. If you want to own a Canadian index fund, you should buy the iShares CDN LargeCap 60. You’ll pay about a third of the management fees. We don’t recommend iShares MCSI Canada Index Fund.

UNIVERSAL CANADIAN GROWTH FUND $16.35 (CWA Rating: Conservative) (Mackenzie Financial Corp., 150 Bloor St. West, Toronto, Ontario, M5S 3B5. Web site: www.mackenziefinancial.com. Tel: 1-800-387-0780; Load fund: available from brokers) holds companies with strong management and sound business prospects. The fund holds fewer than 40 stocks at all times. Universal Canadian’s top holdings include Thomson Reuters, Rogers Communications, Edwards Lifesciences, ShawCor, John Wiley & Sons, Dun & Bradstreet, Enerflex Systems, EnCana Corporation and Research in Motion. The fund’s breakdown by economic sector is as follows: 17.7% in Consumer Discretionary, 16.5% in Information Technology, 13.5% in Energy, 7.1% in Health Care, 6.3% in Telecommunications Services and 5.1% in Metals & Minerals....

ISHARES MSCI JAPAN INDEX FUND $8.67 (American Exchange symbol EWJ; buy or sell through a broker) is an exchange-traded mutual fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index. The fund charges a fee of 0.59% of assets. The fund’s top holdings include: Toyota Motor, Mitsubishi UFJ Financial Group, Canon Inc., Nintendo, Sumitomo Mitsui Financial, Honda Motor, Tokyo Electric Power, Nippon Telegraph & Telephone and Takeda Pharmaceutical. Japan’s economy is heavily dependent on exports, especially to the U.S. Falling consumer demand and unfavourable currency movements have cut the country’s exports by as much as 35%, and pushed it into recession. However, recently elected Prime Minister Taro Abe has put stimulus measures in place totalling $842.5 billion. This should help push growth up until global economies recover....

Claymore Investments, Inc., is the wholly owned Canadian subsidiary of Chicago-based Claymore Group Inc. The Canadian branch now offers five exchange-traded funds (ETFs) trading on the Toronto exchange. All of the funds aim to combine what Claymore sees as the advantages of passive investment in an index, along with active management to eliminate stocks from the index that it expects to perform poorly. The funds use varying degrees of mathematically formulated models or quantitative investment methodologies which the managers see as a systematic approach to equity selection, portfolio monitoring and portfolio management....

3M COMPANY $56.04, New York symbol MMM, fell roughly 7% this week after it warned that the slowing economy will hurt its earnings. As well, the company gets two-thirds of its earnings from overseas markets, and the higher U.S. dollar will dampen its overall growth. 3M now expects to report earnings of $5.10 to $5.15 a share for 2008, down from its earlier forecast of $5.40 to $5.48 a share. For 2009, 3M expects to earn between $4.50 and $4.95 a share. The stock trades at 11.9 times the midpoint of its 2009 range. The company also announced a new restructuring plan that should save it $170 million in 2009. That’s equal to about 5% of its annual earnings. The savings should let 3M continue to fund research (5% of revenue), and pursue acquisitions....

ISHARES MCSI CANADA INDEX FUND $15.98 (American Exchange symbol EWC; buy or sell through brokers) is like a market-cap based index fund, but it tinkers with the index fund formula to try and improve performance by using its proprietary Morgan Stanley Capital International Canada Index. The U.S.-based fund also has to work around foreign ownership restrictions. iShares MCSI Canada Index Fund is managed by Barclays Global Investors and has an MER of 0.54%. We think that if you want to own a Canadian index fund, you should buy the iShares CDN LargeCap 60. You’ll pay about a third of the management fees. We don’t recommend iShares MCSI Canada Index Fund.

We still think high-quality mutual funds with a long-term focus will beat indexes over long periods. If funds invest as we advise — sticking with well-established companies and spreading their assets out across the five main economic sectors — they will tend to lose a lot less than the market indexes in periods when the indexes fall sharply. That’s because big market slides are particularly hard on the hottest, most popular stocks of the preceding market rise, and investing as we do leads you to avoid excessive investment in the hot stocks. Index funds, in contrast, do tend to load up on the hottest, most popular stocks as they rise. That’s because, as they rise, these stocks make up a rising proportion of the index. The most recent example is Potash Corporation of Saskatchewan, which had the highest market cap on the Toronto exchange in June, 2008, on the strength of soaring fertilizer and agriculture prices. The shares have since dropped 70%....

THE STANLEY WORKS $33 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 78.6 million; Market cap: $2.6 billion; WSSF Rating: Average) makes a wide variety of hand and power tools for consumer and industrial users. The tool business exposes Stanley to the cyclical home construction, renovation and automotive repair industries. However, the company is successfully expanding its building security operations, which now account for 35% of its revenue and 45% of earnings. Steady revenue streams from the security business should let Stanley keep paying its $1.28 dividend, which yields 3.9%. In July, 2008, Stanley acquired Canadian-based Xmark Corp. for $48 million. Xmark makes radio frequency tags that help locate people and property. The company also paid $278 million for Sonitrol Corp., which provides security monitoring services to businesses in North America. These purchases should add $140 million to Stanley’s annual revenue....