Brandes U.S. Small Cap Equity Fund is offered by Bridgehouse Asset Managers and is managed by the
Brandes Investment Committee using a fundamentally-driven, bottom-up, value-focused approach based on
the classic Graham and Dodd theory of value investing. It’s a U.S.-centric
small/mid cap fund that looks to build a diversified portfolio of
businesses that are trading well below their estimate of true value, with
the potential for capital growth. At the end of November, it held 45 names,
with the top 10 making up about 30% of the fund’s assets.
The focus is on companies that are less than $1.5 billion in market
capitalization. Given the bottom-up approach, the sector mix is the result
of the stock selection process, and it will often look nothing like its
benchmark. At the end of November, it was significantly overweight in
industrials, and consumer cyclicals, with no utilities, or communications,
and little exposure to materials.
Top holdings included
Resources Connection Inc. (NASDAQ: RECN),
Owens & Minor Inc. (NYSE: OMI),
St. Joe Co. (NYSE; JOE),
Avnet Inc. (NYSE: AVT), and
World Fuel Services Corp. (NYSE: INT).
The team is disciplined in their approach, and will only invest in
opportunities that meet their strict valuation criteria. At the end of
November, they held nearly 21% in cash. Given the value focus, it’s not
surprising that the valuation metrics in the portfolio are extremely
attractive, compared with the broader market and its peer group. The fund’s
price to book ratio was around half that of the benchmark, providing ample
margin of safety.
Performance has been very strong, posting a 5-year average annual
compounded rate of return of more than 18.2%, compared with an 15% rise in
the Russell 2000. Volatility has been well below the index, and it has done
an excellent job protecting capital in down markets, experiencing around
half the markets declines over the past five years.
The biggest drawback to the fund is its cost, which is 2.73%, which is well
above the category average. Given the significant variance between the
portfolio and the benchmark, the fund may also be subject to periods of
performance dislocation. A notable example was in 2008 when the fund
dropped nearly 50%, lagging the peer group by nearly 2,000 basis points.
Still, this can be part of a well-diversified portfolio as a potential
Brandes U.S. Small Cap Equity Fund
Bridgehouse Asset Managers
U.S. Small Cap Equity
Small Cap Value
Brandes Investment Team
2.73% (front end units)
BIP217 (low load)
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
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.