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A Canadian fund comeback
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July 21, 2000: 12:14 p.m. ET
Managers say new economic vitality across the border has revived Canadian stocks
By Staff Writer Parija Bhatnagar
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NEW YORK (CNNfn) - U.S.-managed Canadian mutual funds are packing some punch with American investors, who are feeling more confident about reaping gains north of the border as Canada's economy powers ahead into the second half of 2000.
The reversal of fortune for Canadian funds follows a turbulent period not too long ago when investors virtually shunned international funds. But fund managers say Canada's strong market and expanding economy has brought some enthusiasm back for these funds.
Canadian funds are up as much as 22.47 percent year-to-date as of July 19, according to Chicago-based mutual fund researcher Morningstar, and have risen an average of 55 percent in the past 12 months.
 "There's strong performance from across sectors in the Canadian market," said Stephen Binder, manager of Fidelity's Canada Fund. "The prices of natural resources that were affected when Asian economies were doing badly have rebounded. Oil and gas is probably the best performer in that sector. But technology is the key driver of the market. The unemployment rate there has been dropping, and the Canadian dollar has stabilized. So that's actually good for exports."
At the same time, a stronger U.S. dollar against the Canadian dollar also makes it cheaper for American investors to buy Canadian stock.
Fidelity's Canada fund, the biggest Canadian fund, with $91.9 million in total assets, is up 23.9 percent this year as of July 14.
What does this mean for U.S. investors? Opportunity to diversify internationally, enhance investment performance, while reducing risk.
In addition to the old standby - natural resources— analysts say there has been a large resurgence in non-resource companies in Canada that have taken the lead as attractive value plays for investors.
"The Canadian market is on fire, but it's mostly because of one hot stock --that's Nortel. Nortel makes up 75 percent of our market index and has a market capitalization of about C$345 billion ($234.2 billion), said Duff Young, CEO of Windsor, Ontario-based tracking company FundMonitor.com.
"In one way, an advantage for U.S. investors is that the market is becoming more of a high-tech market. And it's a great diversification play for Americans."
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Analysts point out that although Canada's most promising technology, telecom, as well as Internet companies, are enjoying a bull run in the market, they don't necessarily evoke the same degree of hype as some of the big cap U.S. names.
 "I think the Canadian market has been somewhat overlooked, and evaluations there tend to be a little bit lower in Canada for very similar companies to their peers in the U.S.," said Steve Taylor, financial analyst at the Taylor Group in Seattle Washington.
Nevertheless, two big Canadian stocks -- telecommunications company BCE Inc. (BCE: Research, Estimates) and telecommunications equipment maker Nortel Networks (NT: Research, Estimates) -- are getting recognition in the global marketplace. BCE and Nortel are Fidelity Canada's two top holdings. BCE is also among the top10 holdings of The Putnam International Growth Fund.
Two other sectors to watch out for are the financials and cyclicals that "make absolutely compelling arguments as value plays today because they're priced at bargain basement prices," said Young.
Fidelity Canada's portfolio includes 3.3 percent in net asset of Toronto-Dominion Bank among its top holdings. The revenue growth of Canadian banks has been strong, said Binder, and Canadian banks have benefited from good exposure to capital markets and cost-cutting measures.
Canadian funds as a category, however, are still a very small piece of the pie out of all world equity funds, at about $88.2 million in total assets compared to about $ 514 billion in total assets for Global funds, but for the U.S. investor, they offer some foreign exposure with a home-base feel.
"Being a North American country, the risks are obviously much less than somewhere else. Canada's also our number one trading partner," said Taylor. I'm very happy to see Americans are finally waking up to opportunities across the border." 
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