IA Clarington U.S. Dividend Growth Fund
This U.S. Equity fund has been managed by Pierre Trottier since early 2013.
With his unique way of looking at the U.S. market, he does basic due
diligence, researching companies with good balance sheets and the ability
to consistently grow both their cash flow and dividends. But the twist here
is that he also looks for companies that are potential takeover targets. In
most takeovers, there is a reasonable premium offered, which has the
potential to increase returns.
His stock selection process has a value bias to it, which helps to explain
some of the fund’s recent underperformance. However, over the long term, it
has the potential to deliver stronger returns with slightly less
In addition to the fundamentally-driven, bottom-up stock selection process,
Trottier also uses two additional components.
First is that the fund’s currency exposure is actively hedged, which means
he will look to opportunistically manage the currency, not only to protect
capital but also to enhance returns.
Second, he may use a covered call strategy, which can help increase the
overall income generated by the fund, with the added potential for
mitigating downside volatility. He uses the strategy only tactically, and
sparingly, because he believes the strategy is not profitable in a rising
market environment because many of the good stocks are called away, thereby
Performance has been somewhat disappointing on a relative basis. For the
three years ending May 31, the fund gained an annualized 6.4%, while the
S&P 500 gained 12.5% in Canadian dollar terms. There are two factors
that may have caused this underperformance. The first is the value bias,
and the second is the currency hedging strategy. Despite recent strength,
the Canadian dollar has lost ground against the greenback, meaning any
hedged currency exposure would detract from absolute returns.
Looking ahead, this is a fund that has a lot of potential. The focus on
dividend growers, the enhanced income strategy, and the attractive
portfolio valuation levels provide a strong foundation for growth. However,
performance will all depend on the execution of the strategy. In most
cases, investors looking to the U.S. market tend to be better rewarded
through a passive index exposure.
IA Clarington Global Opportunities Fund
This Global/Small/Mid-Cap Equity fund is sub-advised by Radin Capital
Partners, led by manager Brad Radin, who first made a name for himself
managing the Templeton Global Smaller Companies Fund from April 2009 to
February 2011. During that time, he posted extremely impressive results,
posting positive returns in 10 of 11 years. After leaving Templeton, Mr.
Radin set up his own shop, and started managing this IA Clarington
This is a go-anywhere fund that scours the globe looking for mispriced
stocks of companies of any size. Radin searches for stocks where the market
has overreacted and sold off, allowing him to step in and pick up a quality
company at an attractive price.
To find these companies, he and his team use a fundamentally-driven,
bottom-up investment process that starts with a screen of the investment
universe, looking at valuation, balance sheet strength, returns, and
profitability. Once an investment candidate is found, Radin undertakes a
detailed review, looking to understand the business, the management, and
The fund typically holds between 30 and 60 names, and the country and
sector mix will be the result of the security selection process, and not an
index-tracking mandate. At the end of May, Radin held 49 names in the
portfolio, with the top 10 making up just under a third of total assets. He
remains true to the all-cap focus, with roughly 34% in large caps, about
27% in medium caps, and the balance in small- and micro-cap names.
Radin has a large overweight to consumer cyclicals and financials, which
combined make up more than half the portfolio. He is significantly
underweight tech and real estate.
The portfolio’s valuation is very attractive, trading at levels well below
the benchmark and peer group. However, performance has been middle of the
pack, with a 5-year average annual compounded rate of return of 9.6% as of
May 31, compared with 10.6% for the Global Small/Mid Cap category average.
Volatility has been in line with the index and peer group.
Much of the underperformance can be attributed to the value focus of the
fund, with value and quality names lagging recently in favour of growth and
higher beta names, which tend to outperform in momentum-driven markets.
Looking ahead, the portfolio’s valuation levels combined with the
favourable growth outlook put this fund on track to outperform down the
road. Given the solid investment process run by a management team with a
history of top performance, this fund is a solid offering for those looking
for all-cap global equity exposure.
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.
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