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Q1/6 Focus on ETFs
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Q1/3 Saxon Stock
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Q4/2 Mawer New Canada
Q4/2 Perigee T-Plus
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Q2/2 Leith Wheeler Cdn Eq
Q2/2 Perigee Diversifund
Q1/2 PH&N Cdn Equity
Q1/2 Mawer U.S. Equity







Perigee T-Plus Fund

Among Canadian money market funds the Perigee T-Plus fund has one of the best long-term track records. It's ten-year average annual return of 4.71% is only 0.14% below the benchmark 91-day Treasury Bill index. This modest level of underperformance is smaller than the fund's MER, which implies that, on average, the fund has outperformed the index before fees. It also beat the average Canadian money market fund by 0.77%.

Owen Phillips has managed the fund since its inception in 1988. The fund invests primarily in Government of Canada Treasury Bills (T-Bills) with maturities of no more than 180 days. However, the fund will also invest in high-quality short-term issues from large Canadian banks and corporations rated no less than R-1 (low) by the Dominion Bond Rating Service (DBRS). An important regulatory constraint on money market funds is that the dollar-weighted average term to maturity must be kept at or below ninety days.

Mr. Phillips actively trades the yield curve which means that, at any given time, he seeks to improve the fund's yield by constructing a portfolio that is likely to provide the best rate of return. This is in contrast to a strategy of holding issues to maturity. Mind you, he does not attempt to time interest rate changes and he constrains the fund's average term to maturity to between eighty and ninety days. His flexibility in designing yield-enhancing strategies is increased by the fund's freedom to invest in short-term bank and corporate paper.

By convention, a money market fund's current yield is the annualised return based on the preceding seven day period which, on December 31st, was 2.6%.

At the end of the year the fund held nineteen distinct issues. Canadian government T-Bills made up 67% of the fund's assets, bank issues 18%, and corporates accounted for 15%. Bank notes held in the portfolio included CIBC, Royal Bank, and The Bank of Nova Scotia. The fund also held corporate paper issued by Hydro One, which is rated R-1 (low), and six different trust companies rated R-1 (high). Overall, the fund's weighted average term to maturity was close to ninety days.

The average term to maturity tells only part of the story. The fund ended the year with a barbell maturity structure. Corporate and bank issues were concentrated in the one-month range, while the T-Bills had maturities of four and five months. This allowed the fund to take advantage of the safe higher yields available from both near-maturity bank and corporate notes and from T-Bills of maturity greater than three months. Thus, although the fund held no three-month issues, it increased its yield while keeping its average term to maturity in the target range.

The fund moved to the existing barbell structure in mid-December. Previously, the fund had a bullet structure. Indeed, at the end of the third quarter 90% of the fund was invested in T-Bills that were heavily concentrated in the three and four month ranges. Such a shift from a barbell to a bullet shape (and back again) occurred a few times during 2002 when the manager sensed profitable opportunities.

Going forward Mr. Phillips foresees a period of increased opportunities as market players position themselves in advance of possible increases in domestic interest rates. Although he does not personally agree with the hawkish outlook expressed by the Bank of Canada on January 21st, he does expect rates to rise in the second half of the year. He also believes that, because of its different priorities, the U.S. Federal Reserve will be "in no hurry" to raise rates. For the time being, the fund has adopted a neutral position.

Typically investors use money market funds to hold cash on a temporary basis. So, for example, one could place some money in the T-Plus fund as a precursor to investing in another Perigee fund. With the cash at Perigee, the next transaction can be done anytime. Given the temporary nature of such a move, it is noteworthy that the T-Plus fund doesn't charge the usual 2% redemption fee if assets are moved out of the fund less than ninety days after purchase.

The Perigee T-Plus fund has a strong long-term record of providing superior money market returns. Its low 0.47% MER makes it an attractive place to temporarily hold as little as $2500, or to hedge against inflation. For frugal investors who want to park some cash, the Perigee T-Plus fund is an excellent choice.

FF: Q4 2002

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