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Q1/6 Focus on ETFs
Q4/5 LW Canadian Equity
Q4/5 Saxon High Income
Q3/5 Saxon Small Cap
Q3/5 BG Income
Q2/5 Trimark Canadian
Q2/5 MB Fixed Income
Q1/5 BG Canadian Intrinsic
Q1/5 MB American Equity
Q1/5 Mawer N.C. Closure
Q4/4 Mawer Cdn Equity
Q4/4 Mawer Balanced RSP
Q3/4 Sceptre Equity Growth
Q3/4 Saxon World Growth
Q2/4 BG Small Cap
Q2/4 Mawer U.S. Equity
Q1/4 PH&N Cdn Growth
Q1/4 Leith Wheeler US Eq
Q4/3 iShares S&P500
Q4/3 BG Canadian Equity
Q3/3 North Growth US Eq
Q3/3 HSBC Mortgage
Q2/3 MB Cdn Eq Growth
Q2/3 Batterymarch US Eq
Q1/3 Saxon Stock
Q1/3 BG Balanced
Q4/2 Mawer New Canada
Q4/2 Perigee T-Plus
Q3/2 PH&N Dividend Inc
Q3/2 PH&N Bond
Q2/2 Leith Wheeler Cdn Eq
Q2/2 Perigee Diversifund
Q1/2 PH&N Cdn Equity
Q1/2 Mawer U.S. Equity







Saxon Stock Fund

Between 1999 and 2001 the Saxon Stock fund posted double-digit annual returns, but it met the bear during the summer of 2002. The fund gained only 0.3% in 2002, which is still much better than the 12.4% loss posted by the S&P/TSX Total Return index. Indeed, despite recent weakness, the fund has added an average of 5.5% annually over the last five years compared to the index's average 1.9% annual loss.

Managed by Rick Howson since 1989, the fund takes a contrarian bottom-up value-based approach to investing with an emphasis on individual stock picking. Mr. Howson looks for Canadian companies with strong balance sheets that are, for whatever reason, trading at prices well below their intrinsic value. Of the many possible value indicators, Mr. Howson cites a company's ability to generate cash as being the most important for determining its intrinsic value.

Once purchased, a stock is typically held by the fund for three to five years, or until it has risen to its intrinsic value. The fund's low 16% turnover is a testament to this long-term outlook. Should a stock come to represent more than 6% of the portfolio it is the fund's usual practice to sell.

Unlike many Canadian equity funds, the Saxon Stock fund does not invest in derivatives. Mr. Howson believes that derivatives are simply not worth the cost and prefers to be fully exposed to his chosen stocks.

Taken as an aggregate, the fund's portfolio is well priced. The equity portion of the portfolio has a 2.3% dividend yield, which is a bit greater than the S&P/TSX Composite index's 1.9%. The portfolio's 6.3% earnings yield translates to a P/E ratio of 15.8, which compares well with the index's P/E of about 29. Price-to-book comes in at 1.3, while price-to-sales is a respectable 0.76. For comparison, the index's median price-to-book was 1.8 at the end of the quarter. The fund's holdings in the iShares MSCI European Monetary Union and Japan ETFs were excluded from the preceding analysis. Together they make up 5% of the fund and provide diversification into foreign markets. Mr. Howson believes that these markets continue to be undervalued relative to the North American markets. All in all, the portfolio represents good value.

At the end of the first quarter the fund held fourty-eight securities. Cash represented 5.2% of the portfolio, up 2.5% from the previous quarter. The top three sectors were industrial products, financial services, and materials. The fund's top three stocks were CP Ships, Gennum, and Nu-Gro, which together accounted for less than 10% of the portfolio. During the first quarter, the fund was uncharacteristically active, selling Goldcorp and TransCanada Pipelines. The proceeds from these sales were used to open new positions in Barrick Gold and TransAlta, as well as to increase some existing positions, notably in Cott Corporation and Royal Group Technologies.

When asked to choose his best pick of the last few years, Mr. Howson cited two moves as his favorites. First, the fund purchased Manulife and Industrial Alliance after their de-mutualisation. Second, it deliberately avoided the high-tech and telecom sectors during the late 1990s. His worst pick was a now defunct Delicious Alternative Desserts. Its story illustrates the business risk associated with equities. Simply put, Delicious went bankrupt before it was able to turn a profit.

Mr. Howson believes that the Canadian market should yield single digit returns this year. He also sees many buying opportunities for the fund in the current bear market.

One point of concern is Saxon's recent rapid growth as measured by assets under management. Despite the steady redemptions reported by the industry as a whole, the Saxon Stock fund has grown from managing $15 million to over $94 million over the last two years. Large cash inflows can be difficult to deploy effectively. Nevertheless, the firm's two portfolio managers, Rick Howson and Bob Tattersall, maintain that their funds have not yet grown to the point of being difficult to manage.

Over the past 15 years the Saxon Stock fund has returned an average of 9.6% annually, which is 2.6% greater than the performance of the S&P/TSX Total Return index. The fund's low MER of 1.87% (including GST) is a bargain for this kind of performance, and its low $5,000 minimum investment makes it accessible to most investors. The Saxon Stock fund is appropriate for conservative value-oriented investors who are looking for low-cost long-term portfolio growth.

FF: Q1 2003

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