Shunned Canadian funds
Overlooked Canadian funds that deserve a look
In deciding where to place this year’s RRSP contribution, many look to the
old familiar names that have amassed billions of dollars in assets on behalf of
Canadians. However, there are often funds that fly under the radar for one
reason or another. Not that I’d like more funds added to portfolios, but here
are four funds that should get some attention when looking for funds that aren’t
already busting at the seams with investors’ money.
I focussed on Canadian equity funds that have been around for at least five
years. For mid-to-large cap funds, I looked for assets under management of less
than $400 million, while the threshold for small cap funds was $100 million.
Past performance must be strong and/or the current manager must generally
exhibit attractive style attributes.
Mawer Canadian Equity
Some may not consider this a positive, but this fund has a mandate of
offering pure exposure to Canadian stocks. That means no foreign content and a
minimal amount of cash. Lead manager Jim Hall looks for firms that create
shareholder wealth over time, which involves – in part – an exhaustive
risk/return analysis under many different (positive and negative) scenarios. A
key goal is to nail down a value estimate, as they strive to buy a growing
business without overpaying.
As an overlay on this and the other firm’s portfolios, Mawer implements a
process they call T.E.A.M. – tax effective asset management. In short, it aims
to minimize the tax impact of the turnover that falls naturally out of the
firm’s investment process.
This is one of my favourite Canadian equity funds. It has it all. Low fees,
tax sensitivity, a value-oriented style, a strong and deep management team, and
a solid performance record. But with less than $60 million in assets, this
remains one of the industry’s best-kept secrets.
While this fund (and its rock bottom MER) will most appeal to do-it-yourself
investors, advisors should not overlook this gem. It pays a small trailer and
should be considered for larger clients.
Dynamic Value Fund of Canada
Dynamic’s flagship fund, this one has a history dating back to 1957 (it
opened up to the public in 1963). Once a resource-heavy mid-cap fund, this
offering has had a few manager changes in the past eight years. Just over a year
ago, David Taylor took charge of this $238 million fund and he’s made a big
splash so far with a 29 percent return for 2003. Taylor’s former money
management responsibilities include resource and – to a lesser extent – other
specialty mandates with Altamira and Triax. Taylor knows the oil patch well, and
is adamant about buying stocks on the cheap.
But he’s more than a one-trick pony given that his latest performance surge
didn’t come on the coattails of only energy stocks. Rather, the big factor in
his performance was an ability and willingness to buy smaller company stocks (in
Canada and abroad). A true all-cap fund, the ‘small cap factor’ was even more
evident in the Dynamic Canada Value Class (a foreign content fund). Unusually,
this corporate class version is not a clone. Taylor simply bought the best value
he could find and scored big on holdings that were even too small and illiquid
for the Value Fund of Canada.
If assets start creeping up much above $500 million, many smaller companies
will simply be out of reach (for liquidity reasons). In the meantime, this is a
good one-decision Canadian equity fund, particularly when good value among
larger companies is scarce.
RBC Canadian Value
Between her time at Empire Life and RBC, Ina Van Berkel has very quietly put
together an unspectacular but solid decade of performance in Canadian equities.
She has closely matched her customized benchmark over that time but has done so
with less risk. This makes sense considering her value-tilted GARP (growth at a
reasonable price) approach to selecting stocks.
I admit that it’s not my favourite fund and I don’t recommend it. Plus, at
2.15 percent, its MER isn’t cheap. So why mention it? Because I believe it’s a
decent offering and perhaps the best Canadian stock fund in the RBC family. And
because its tiny $60 million asset base is rather surprising in light of the
fact that RBC has two other stock funds, each boasting more than $3 billion in
Standard Life Canadian Small Cap
You won’t find any star managers at Standard Life. Good luck even discovering
the identity of any fund’s lead manager. But that’s they way they like it
because they manage money with a true team approach – and this fund is no
exception. Standard Life’s Strategy and Asset Mix committees drive this fund’s
investment process by pointing it in a particular direction for industry
emphasis – leaving analysts to note their top picks, and the portfolio manager
to structure the portfolio.
More than two years ago, then lead manager Charles Jenkins correctly
described the late 2001 rally as “fake”. In hindsight, he also correctly called
for the beginning of an economic recovery in late 2002 and said that there’d be
no meaningful tech and telecom recovery until 2003.
Dan Hallett, CFA, CFP is the President of Dan Hallett and Associates Inc., an independent investment research firm based in Windsor, Ontario. Dan can be reached at email@example.com.