By Jonathan Chevreau National Post FP Money Saturday, July 5, 2003

June fund numbers should be a pleasant surprise for investors.

During the bear market, many investors adopted the ostrich-like tactic of not opening their investment statements when they dropped through their mail slot.

But when quarterly or monthly statements arrive next week, these investors can pull their necks back out of the sand. Most can expect a pleasant surprise: a net dollar figure higher than the one printed in their last statement!

"Most clients will be pleased," predicts Jim Rogers, "June 30 statements generally show higher market values than were the case on Mar. 31."

June statements should be about where December statements were, says Nate Mechanic. "Many won't realize how much it's recovered."

The surprise will be greater for those who receive quarterly statements than those who get monthly statements they open regularly.

"There's no question it will be nice for a change, " agrees Dan Seabrooke.

"If people held on to more aggressive portfolios they may be up more than a balanced approach but it's nice to see everything on the move right now."

U.S. equities have been on a tear since March, with the high-tech Nasdaq up more than 20%. Managers of global or U.S. equity funds are finally pitching down the middle of the plate, says Mechanic.

For Canadians holding foreign funds denominated in Canadian dollars, gains will be partly offset by the rise of the loonie. However, those holding Canadian stocks or funds will be up nicely: the S&P/TSX composite index gained 10.6% in the second quarter.

More conservative investors will continue to enjoy compounding interest in fixed-income vehicles. A typical client with a 50/50 bonds/stock mix would be up 5.6% in the last quarter, says Paul Filipiuk. Someone with 100% in fixed income would be up 2.9%, or 11.7% on an annualized basis.

Those with still unopened statements from 2002 may want to take a peek at them today, if only to temper the resurging bullishness of what some believe is merely "Bubble II."

Adrian Mastracci, of Vancouver based KCM Wealth Management, recalls clients who brought him their unopened statements when they first came to him after bad experiences with other advisors. "The portfolio statements serve as painful reminders, especially for investors who own primarily stocks and [equity] funds."

Jane Baker says she has always encouraged clients to open their statements and "face the music -- good or bad -- and call me if they need a conductor.

Baker agrees the overriding emotion by clients and advisors is relief. "To see even a small reversal to the three-year endurance test brings on a little euphoria."

This time around, advisors are more insistent about counselling clients to have a mixture of asset classes. Jim Rogers' clients are primarily invested with retirement in mind, so their asset allocation resembles institutional pension plans -- 50% equities, 40% fixed income and 10% cash.

June 30 statements should not cause clients to take precipitous action, Rogers says. "At most, some clients might need to rebalance their portfolios to achieve their target mix if automatic rebalancing is not already in place."

Warren Baldwin says many clients still have to be educated on asset mix during the second quarter. Rebalancing and "underweighting or reducing Canadian equity and fixed income in favor of U.S. equity and international equity seemed quite counterintuitive."

Baldwin is not convinced investors learned much from the harsh lessons of the bursting of Bubble One. "It's human nature to leap on the proverbial hype bandwagon when we hear the money is greener in someone else's portfolio."

For example, some are being lured by the 9% cash flows generated by income trusts last year. They insist on making income trusts or funds the "fixed income" portion of their portfolio, until Baldwin tells them income trusts should be considered a form of high-yield equity.

Other clients look at the recent NASDAQ surge and are tempted to load up on technology funds or the QQQ exchange-traded fund. "Hopefully they will recall how heavily this index plummeted and think twice about overweighting," Baldwin cautions.

Nor is he convinced investors have learned to shun the practice of boasting of their newfound portfolio successes at cocktail parties. "Consistency of return and a comfortable level of volatility are seldom considered by many investors as criteria of a successful portfolio," he says.

"Even when markets are recovering we must still maintain a vigilant asset mix structure since any unforeseen economic or political crisis could sap the recovery's strength," Baldwin warns.

Mastracci also fears investors may repeat the mistakes of the past. "It's a vicious cycle. They want to improve returns, look for home runs, hot sectors, time the market or buy hopes and dreams. They take on added risk and one day portfolio results come home to roost. Tried and true investment strategies still work well -- successful portfolios are boring, not exciting."

Filipiuk is convinced we are merely in a "mini bull" phase of a more protracted bear market. Because his clients have been mostly in bonds (including inflation-indexed real return bonds) during the bear, none were afraid to open statements.

Filipiuk is a fan of Dow Theory Letters' Richard Russell, who emphasizes the power of compound interest and stable dividend income.

Baker says income-based investments are a significant and possibly permanent preference for those who have reached age 50. Despite low interest rates, many of her investors seek preferred shares, power utility income trusts, real return bonds, REITS, high-yield mortgage funds and bond ETFs.

These can enhance returns without boosting the traditionally higher-risk equity allocation, Baker says.

Those adopting such "get rich slowly" strategies should have little to fear from statements, no matter when they are opened.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.