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or a while, the cana-dian equity funds that thrived were the ones that didn’t have much exposure to oil. When commodity prices slid last year, these funds outpaced those heavy in energy. But, with the oil market expected to strengthen as demand increases this winter, it could be the funds more heavily invested in oil that shine. Which group will lead the way into 2007?

AGF Funds Inc. ’s $2.3-billion AGF Canadian Stock Fund is one offering that hasn’t become totally dependent on fossil fuels, a stance that has hurt it in recent years relative to the S&P/TSX composite index. The fund rose 22.2% in calendar 2003, 12.2% in 2004 and a further 20.3% in 2005, lagging the benchmark but ahead of the average fund in its category. Year-to-date as of Oct. 31, 2006, the fund was up sharply, notching a 12.4% gain.

A more energy-rich alternative is the $737.9-million Altamira Equity Fund sponsored by Altamira Investment Services Inc. It returned a more modest 15.9% in 2003, following up with an 11.2% rise in 2004 and a strong 22.5% jump in 2005. Year-to-date, the fund is up 9.84%, trailing both the index and the average fund.

The AGF fund receives a four-star ranking from Morningstar Canada, while the Altamira fund rates two stars, suggesting the latter has not delivered as expected.

Other than a short stint with a Swiss bank, the AGF fund’s manager, Martin Hubbes, has spent his entire career with AGF, most recently as chief investment officer. Hubbes describes his investment style as growth at a reasonable price.

He looks for companies with powerful brand names and patents whose revenue, earnings and cash flow are growing and whose expansion plans require little debt. The selected companies must be able to compete globally even if they are based in Canada, he says.

After a failed exercise with Ian Ainsworth following its sale to National Bank of Canada, Altamira turned its equity fund over to Virginia Wai-Ping in 2003. Previously with CT Private Investment Counsel, Manulife Financial Corp. and TAL Fund Management Inc., Wai-Ping has had to fight a steady stream of redemptions from the outset and is taking a more moderate approach to investing than her predecessor. Although she inherited several illiquid private-equity positions, she has still made several changes during her tenure, doubling the number of stocks in the portfolio and increasing average capitalization.

A growth manager, Wai-Ping looks for companies gaining market share relative to the competition that have good management, a healthy balance sheet and attractive relative valuation.

Although Canadian equity funds can now take their foreign content well past the 30% limit, neither of these funds has elected to do so. The Altamira fund has a scant 9% of its assets invested outside Canada — about two-thirds of that across the border — avoiding the negative effects of a rising Canadian dollar. Historically, however, this fund has had considerable exposure to U.S. equities, particularly in sectors underrepresented in Canada, such as health care and science and technology. U.S.-dollar exposure is often hedged as a result.

By comparison, the AGF fund has twice that amount offshore, including 6.2% of assets in the U.S. and another 14.2% in Europe. U.S. holdings have also been much larger in the past. Neither fund holds much cash or income trusts.

The Altamira fund has about 43% of its assets in its top 10 holdings, whereas the AGF fund has only 36% devoted to this list. The Altamira fund seldom holds much more than 60 positions, whereas the AGF fund tracks closer to 100.

Both funds favour large-cap stocks, although the Altamira fund has a slightly higher average market cap. With the exception of the AGF fund’s higher dividend yield, all the other portfolio measures are largely in line with the index and the average fund in their category.

Although the two funds have several large holdings in common, their mix is quite different. Recently the Altamira fund was sharply overweighted in material and energy stocks compared with most equity funds. Financials are high as well. It is, however, considerably underweighted in consumer stocks. Big bets include Suncor Energy Inc. and Petro-Canada, as well as several Canadian banks.

The AGF offering is also heavy in financials, but with a significantly smaller tilt toward energy and an above-market weighting in health care and telecommunications. The fund’s major holdings also include most of the major banks, as well as Encana Corp. and Rogers Communications Inc.

@page_break@The Altamira fund is the least index-like of the pair, with a five-year R2 measure of 89 vs 95 for the AGF fund. (The closer to 100 for the R2 measure, the higher the correlation with the index.) However, neither fund really deviates all that sharply from the benchmark.

The Altamira fund posted a five-year standard deviation of 12.46, higher than the 11.61 posted by the index, while the AGF fund registered 10.77.

Risk-adjusted, the AGF fund’s five-year Sharpe ratio of 0.83 helps push it ahead of the Altamira fund’s 0.57. More recently, though, the gap has closed, with the Altamira fund registering 1.35 vs the AGF fund’s 1.42 on a three-year basis.

Altamira has had its fair share of problems in recent years, enduring considerable turnover in its key personnel and so-so relative fund performance. As well, the Altamira fund’s MER of 2.65% represents a significant hurdle given manager Wai-Ping’s reluctance to take big bets against the index, Morningstar reports. This means the nod here has to go to the AGF offering.

Given that the low-turnover AGF fund has never had a negative five-year return during Hubbes’ tenure and that its MER of 2.41% is slightly less than the median fund’s 2.55% make it a solid option for investors looking for an anchor Canadian equity fund. IE