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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.

Criteria

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 client money.

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 dha@danhallett.com.

 

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