The Wall Street Journal-20080204-Canada Fund Rides Robust Economy

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Canada Fund Rides Robust Economy

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Most Americans have no reason to sing "O Canada," the Canadian national anthem, but Maxime Lemieux is giving them one.

Mr. Lemieux, manager of $4.6 billion Fidelity Canada Fund, has put this country-specific portfolio on the map with consistent, chart- topping results and careful attention to risk. Moreover, he has posted stellar returns without jumping headlong into the hot but volatile energy and natural-resource sectors that have made Canada one of the world's best places to own stocks over the past few years.

The fund returned 35% last year, trouncing its international multicap-core category average by almost 23 percentage points and landing in the top 2% of its peers, according to fund researcher Lipper Inc. It also ranks among the top 4% of its category over three years and top 2% over five years.

While it has fallen so far this year, it has dropped less than its peers.

"This has been a great fund over many time periods," said Jeff Tjornehoj, a Lipper senior research analyst. "This would be an interesting call for someone who believes that Canada's stock market is likely to outperform relative to the U.S. Given the strength of the Canadian economy lately, it's tough to argue against that."

Indeed, Canada's robust economy, a surge of mergers and acquisitions and the rapidly appreciating Canadian dollar all combined in recent years to give Mr. Lemieux a strong tailwind.

"I'm not a momentum guy," he said. "I like to protect my downside. I care about risk. When things are bad, it can always get worse."

Some of the main contributors to last year's performance were Research In Motion Ltd., maker of the BlackBerry handheld- communications device, and fertilizer giant Potash Corp. of Saskatchewan Inc., both of which more than doubled in value.

These days, Mr, Lemieux is even more selective and has increased his cash holdings to between 5% and 10% of the fund's value, compared with 3.7% at the end of December. He said he's concerned that a U.S. slowdown could spread globally and crimp demand for goods marked "Made in Canada."

"I was cautious last year and I'm more cautious now," he said. "Half the market in Canada is natural resources; that's something to be aware of. Even if I'm underweight in these sectors, I may still get hurt."

Mr. Lemieux, 34 years old, joined Fidelity in Montreal in 1996 after graduating from McGill University. The Quebec City native took over the fund in late 2002 and he now works in Boston. Fidelity's records show he has invested between $500,001 and $1 million of his own money in his fund as of the end of October.

"He's developed some real stock-picking skills over the years," said Dan Lefkovitz, a mutual-fund analyst at investment researcher Morningstar Inc.

Mr. Lemieux said he is upbeat about Canada's long-term potential. Demand for natural resources from China, India, Brazil and other emerging economies will increase once global-market turmoil gives way to a new phase of growth, he predicted.