After taking a beating in 2007 and 2008, the Brandes Canadian Equity Fund has really bounced back sharply, gaining an annualized 21.2% for the five years ending June 30, handily outpacing the index and the majority of the other Canadian equity funds in the country, placing it in the Number 1 spot in the Canadian Focused Equity category and earning it a Fundata FundGrade® A Grade for June.
Much of this outperformance is due to its concentrated, bottom up, deep value approach. Managed by the small-cap investment team at Brandes, this portfolio looks nothing like its benchmark. It is significantly underweight in materials, energy, and real estate, while maintaining an overweight in technology, communications, and consumer-focused sectors. It is classified as a small/mid cap fund, but it really has an all-cap mandate and can invest in companies of any size. It currently has exposure to companies of all sizes.
The concentrated portfolio holds fewer than 30 names, with the top 10 equity holdings making up around 45% of the fund. It also has a very healthy exposure to global stocks through its 33% holding of the Brandes Global Equity Fund.
Volatility has been higher than both the index and its peer group, but if we look at how it has performed in down markets, the Brandes Canadian Equity Fund has held up much better than the benchmark. For the three years ending March 31, on average, the fund has experienced 142% of the upside of the S&P/TSX Composite Index, while experiencing only 47% of the downside.
Despite this, I would be reluctant to use this as a core holding. I believe it is just too volatile for most investors. Also, while recent performance has been excellent, as with any fund where the managers are disciplined and remain true to their style, the fund may experience periods of significant underperformance.
While I wouldn’t recommend it as a core holding, I do think it can be a nice complement in a portfolio, bringing some all-cap equity exposure into the mix. There are a lot of things to like about it, including the strong management team, disciplined, repeatable process, and a portfolio that looks nothing like its index.
Fund company: Bridgehouse Asset Managers (Formerly Brandes Funds)
Fund type: Canadian Focused Equity
Fundata FundGrade® Rating: A
Risk level: Medium High
Load status: Optional
RRSP/RRIF suitability: Good
TFSA suitability: Good
Manager: Brandes Investments Small-Cap Investment Committee
Code: BIP 121 (front-end)
Minimum investment: $1,000
See the Fundata FundCard™ for more details.
Click here for more information on the Fundata Prospectus Risk Indices.
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 and Mutual Fund and ETF Update, 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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