FundGrade A+® Award winner Cambridge Pure Canadian Equity a small-cap dynamo
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By Dave Paterson  | Thursday, February 08, 2018


 



It was a tough year for Cambridge Pure Canadian Equity Fund, which dropped just a shade below breakeven for the year, down -0.4%. It is particularly disappointing given the significant cash balance, which was roughly 20% at the start of the year and about 21% at the finish. Much of the underperformance was the result of its energy holdings, which sold off through the year, and over worries over potential trade barriers, politicized pipelines, and an increasingly stifling regulatory environment in Canada. Nevertheless, the fund has been a consistent winner, and has garnered the FundGrade A+ Award for four consecutive years, from 2014 to 2017.

Earlier in the year, managers Greg Dean and Stephen Groff took profits in financial names and with the proceeds added to more defensive, yet attractively valued, consumer staples names.

Despite the underperformance in 2017, the managers reiterated their view that the investment thesis of the names they hold in the portfolio remain intact. They believe the companies are creating wealth, and that in time, the markets will recognize this, pushing their stock prices higher. Valuations remained a concern, which is why the managers took a defensive tilt, keeping their cash balance at around 20%. That has proven to be a prescient stance, given the rise of market volatility through early February.

From a sector perspective, they were overweight energy, industrial services, and consumer services at the end of December, while being underweight materials and healthcare.

Top holdings at Dec. 31 included transportation company TFI International Inc. (TSX: TFII), oil and gas firms Tourmaline Oil Corp. (TSX: TOU) and Keyera Corp. (TSX: KEY), manufacturer Middleby Corp. (NASDAQ: MIDD), and consumer services firm Boyd Group Income Fund (TSX: BYD.UN).

Despite the weak short-term performance, the longer-term numbers have been excellent. For the five years ending Dec. 31, the fund delivered an average annual compounded rate of return of 14.1%, outpacing the index and peer group. Even more impressive, volatility has been well below average, and the downside protection has been excellent. For the past five years, the downside capture rate has been less than 20%.

Looking ahead, given the portfolio’s extended valuations, I would expect to see a more muted return. However, given the disciplined, proven investment process used, I would reckon volatility to remain well below average, making this a good way to gain access to Canadian small caps.

Cambridge Pure Canadian Equity Fund
Fund company:
CI Investments
Fund type:
Canadian Small/Mid Cap
FundGrade Rating: B (December)
FundGrade A+ Award: 2014-2017
Style: Mid-Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Greg Dean since Aug. 2012; Stephen Groff since Aug. 2012
MER: 2.43%
Fund code: CIG11109 (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.

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© 2018 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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