stanley

ISHARES MCSI CANADA INDEX FUND $30 (American Exchange symbol EWC; buy or sell through brokers) invests in most of the stocks in the Morgan Stanley Capital International Canada Index. These stocks represent Canada’s largest and most-established public companies, accounting for about 60% of the market capitalization of all publicly traded stocks. This fund has an MER of 0.54%. These shares are managed by Barclays Global Investors. There are now 30 different MCSI index funds. MCSI Canada’s MER is more than triple the 0.17% MER on the S&P/TSE 60 units, also managed by Barclays. We think that defeats the main advantage of index funds. The spread between iShares MCSI Canada’s high MER and that of a low-fee fund may not appear to make a lot of difference in a single year, but there is no point in paying more than you need to....

We 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. Index funds are a better deal than the majority of funds now available, however. So if you merely want to equal the indexes, here are some of the best deals available in ETFs. We’ve also analysed one we don’t like....

TEMPLETON INTERNATIONAL STOCK FUND $17.91 (CWA Rating: Conservative) (Franklin Templeton Management Limited, 1 Adelaide Street East, Suite 2101, Toronto, ON. M5C 3B8. 1-800-387-0830; Web site: www.templeton.ca. Buy or sell through brokers) invests in stocks around the world. But unlike most international funds, the fund doesn’t invest in Canada and the United States. Geographically, the $2.5 billion Templeton International Stock Fund’s portfolio is distributed as follows: UK, 28.3%; France, 10.7%; China, 7.0%; Germany, 7.0%; Hong Kong, 5.2%; Japan, 5.0%; Spain, 3.4%; Taiwan, 3.2%; Singapore, 3.2%; and Switzerland, 3.1%. The fund’s five-year rate of return is 11.4% annually. That’s compared to a gain of 11.2% for the benchmark Morgan Stanley index. The fund’s MER is 2.74%. Templeton International Stock Fund is a buy.

THE STANLEY WORKS $51 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 82.2 million; Market cap: $4.2 billion; WSSF Rating: Average) makes a wide variety of hand and power tools for consumers and industrial users. In addition to the Stanley brand, the company’s best-known trademarks include Bostitch, Husky, Monarch, and Mac Tools. It sells its products through home improvement chains such as Home Depot and Lowe’s, and independent distributors. In the past few years, Stanley has spent $2 billion on acquisitions to shift its focus from consumer products to industrial products and building security systems, which have steadier revenue streams....

We first recommended Stanley Works at $30 in our August, 2003 issue. We liked the strong earnings potential of its brands, and its expansion into less cyclical industries like building security services. The company also has a long history of rising dividends. Stanley reached a high of $64.25 in July this year, but has since moved down with slowing housing and renovation markets. However, it’s diversifying its product lines and expanding overseas. The stock is also cheap in relation to earnings, cash flow and sales. THE STANLEY WORKS $51 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 82.2 million; Market cap: $4.2 billion; WSSF Rating: Average) makes a wide variety of hand and power tools for consumers and industrial users....

IVY EUROPEAN FUND $13.44 (CWA Rating: Aggressive) holds mostly good quality stocks, although it has underperformed the benchmark Morgan Stanley indexes. We don’t see any reason to hold a mutual fund that concentrates in Europe. If you want European exposure, consider Ivy Foreign Equity Fund (see above), or the closed-end European Equity Fund (see box this page). Ivy European Fund is a sell.

IVY FOREIGN EQUITY FUND $28.24 (CWA Rating: Conservative) outperformed the Morgan Stanley benchmark international index over the last 10 years. The fund gained 6.2%, and that was better than the Morgan Stanley benchmark’s gain of 4.6%. Ivy Foreign Equity Fund made 4.4% over the last year. The fund invests in companies based outside of Canada, but cuts risk by avoiding direct investment in emerging markets. Ivy Foreign Equity is one of our top foreign fund recommendations. Still, we think non-U.S. international funds should make up at most 10% of the holdings of a conservative investor. The fund’s top 10 holdings are Reckitt Benckiser plc (UK household & healthcare products), Mc- Donald’s Corp., L’Oreal SA (French cosmetics), Shopper’s Drug Mart, Nestle SA, Henry Schein Inc., (U.S. healthcare), PepsiCo (U.S. food & beverage), William Demant (hearing health products), and Diageo plc (UK alcoholic drinks)....

At one time, 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. However, due to trends in the mutual-funds industry such as corporate mergers and takeovers, and more aggressive marketing, a fund’s membership in a fund family now has little bearing on its investment approach or appeal as an investment. Below, for instance, we analyse five funds from the Ivy Group. (Note that Ivy is now part of Mackenzie Financial, which in turn is part of IGM Financial. The contact information listed for Ivy Growth and Income also applies to the other four.)...

TEMPLETON GROWTH FUND $12.15 (CWA Rating: Conservative) (Franklin Templeton Management Limited, 1 Adelaide Street East, Suite 2101, Toronto, ON. M5C 3B8. 1-800-387-0830; Web site: www.templeton.ca. Buy or sell through brokers) is invested 31.5% in the U.S., 16.4% in the UK, 6.9% in the Netherlands, 6.9% in Japan, 4.1% in Singapore, 3.9% in Spain, 3.6% in Switzerland, 3.4% in Germany and 3.3% in Canada and 3.2% in Italy. The $4.8 billion fund’s top holdings include Telefonos de Mexico, Royal Dutch Shell plc, GlaxoSmithKline plc, Unilever NV, Merck & Co. Inc., ING Groep NV, El Paso Corp., Siemens AG, Reed Elsevier NV and MIV Therapeutics. The fund made 10.9% over the last year, compared to a gain of 13.7% for the benchmark Morgan Stanley Index. The fund’s MER is 2.34%....

ISHARES MCSI CANADA INDEX FUND $30 (American Exchange symbol EWC; buy or sell through brokers) invests in most of the stocks in the Morgan Stanley Capital International Canada Index. These stocks represent Canada’s largest and most-established public companies, accounting for about 60% of the market capitalization of all publicly traded stocks. This fund has an MER of 0.54%. These shares are managed by Barclays Global Investors. There are now 18 different MCSI index funds. MCSI Canada’s MER is more than triple the 0.17% MER on the S&P/TSE 60 units, also managed by Barclays. We think that defeats the main advantage of index funds. The spread between iShares MCSI Canada’s high MER and that of a low-fee fund may not appear to make a lot of difference in a single year, but there is no point in paying more than you need to....