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Brandes Canadian Equity Fund delivers FundGrade A+® Award-winning returns
11/18/2017 1:03:53 AM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, August 16, 2017


 



It’s been a tough few years for the value style of investing, yet, the Brandes Canadian Equity Fund, offered by Toronto-based Bridgehouse Asset Managers, has been an exception, posting excellent return numbers over the long-term. For the three years ending July 31, it has delivered an annual compounded rate of return of 11.4%, blowing the 2.6% recorded by the S&P/TSX Composite Index in the same period out of the water. That level of performance earned it a FundGrade™ A Grade for July and annual FundGrade A+® Awards for 2104 and 2016.

This is a concentrated, all-cap, Canadian-focused equity fund. It is managed using a disciplined, team-based approach that looks to find Canadian companies that are trading below what Brandes believes they are worth. The portfolio holds only around 25 equity names. It can invest up to 49% outside Canada, and gets that exposure by investing in the Brandes Global Equity Fund.

The investment process is very much a fundamentally-driven, bottom-up one that starts with the Brandes team of Ralph Birchmeier, Yingbin Chen, Mark Costa, and Luiz Sauerbronn looking for well-managed companies trading at deep discounts. Once they find an idea, a detailed analysis is undertaken, where they look to gain a full understanding of the business. After an idea is thoroughly researched, it is presented to the Investment Committee, which decides if it can be added to the portfolio. The weight of a stock is the function of its margin of safety and risks. The result is a portfolio that is much different from the index. It is also a portfolio that tends to have more attractive valuation metrics than either its index or peer group.

Top holdings as of July 31 included the Brandes Global Equity Fund, Corby Spirit & Wine Limited (TSX: CSW.B), E-L Financial Corp. Ltd. (TSX: ELF), Dorel Industries Ltd. (TSX: DII.B), and Fairfax Financial Holdings Ltd. (TSX: FFH).

While performance has been above average, volatility – particularly shorter-term volatility – has been much lower than the peers or the index. Longer-term, however, volatility has been significantly higher, and given the disciplined, value style, I would expect to see volatility increase in the future. Still, I believe the fund has the potential to deliver above-average risk-adjusted returns.

I like this fund, because of its team-based approach, disciplined process, and attractive valuation metrics. The potential volatility levels, and all-cap nature would prevent me from recommending it as a core holding for anyone who may be risk averse. Instead, I see this as a positive contributor when included in a well-diversified portfolio.

The biggest drawback is its high cost, with an MER of 2.72%. But for those with an above-average appetite for risk, this is a fund to consider.

Fund company: Bridgehouse Asset Managers
Fund type:
Canadian Focused Equity
FundGrade Rating: A (July)
FundGrade A+ Award: 2014, 2016
Style: All Cap Value
Risk level: Medium High
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Brandes Management Team
MER: 2.72%
Fund code: BIP121 (front-end load)
Minimum investment: $500

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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