(April 6 – 09:30 ET) – Transportation supplanted technology as the hot sector for the first quarter of 2001, say the analysts at Frank Russell Canada Ltd.

In the first quarter, the Bank of Canada dropped rates 75 bps, but the TSE 300 dropped 14.5%, falling more than 33% from its all-time high, reached in September. “The calendar says it’s spring but there isn’t much spring in the step of investors these days,” says Paul Carter, senior research analyst, Frank Russell. “But for all the bearish talk of corrections and recessions, the quarter did give a good lesson on the importance of diversification.”

Being fully invested in the telecommunications and technology stocks, for example, could have led to 20% to 50% losses. Meanwhile, those investors would have missed 18% gains in both the Transportation and
Conglomerates sectors. “Those investors who stacked too much of their money in yesterday’s hot sector funds felt the worst pain this quarter,” says Carter.

Growth stocks in Canada had another disappointing quarter. The Russell 300 Growth Index dropped 30.4% in the quarter, only marginally “better” than the record 31.3% decline experienced during the fourth quarter. Although Nortel was, once again, the largest reason behind this quarterly decline, other former high-fliers such as Research in Motion, C-MAC Industries and Ballard Power Systems also pulled the Growth Index down. The Technology-Hardware and Technology-Software Indices fell 52% and 24% respectively this quarter.

In contrast, the Russell 300 Value Index lost 2.8% during the first quarter. While certain stocks in
the Financial Services sector took a hit during the quarter the damage to the Index was mitigated by the likes of conglomerate Canadian Pacific, CN Railway and United Dominion.

Value managers, on average, performed significantly better than growth managers during the first quarter. “While most managers are just now reporting first quarter performance data, one only has to look at the
performance of some of the sectors that value managers typically favour to see that they benefited from the continued rotation out of the Technology sector and into safer havens,” says sarter. The Oil & Gas sector, which had another positive quarter due primarily to continued high oil and gas prices and oilpatch takeovers, returned 1.7%.
-IE Staff