One of the most important rules of investing is that short-term performance does not always predict long-term performance. Take for example, the Renaissance Global Markets Fund. This fund has significantly underperformed its peers during the first two months of 2012. But because of the consistency of its long-term risk adjusted returns, this fund, like the Steadyhand Small Cap Equity Fund, both receive an “A” Grade from Fundata's FundGrade® rating system. Let’s take a closer look at what makes these funds winners over the long term.
Renaissance Global Markets Fund
The Renaissance Global Markets Fund stumbled out of the gate in 2012, earning just 3.4% in the first two months of the year. This has significantly underperformed both the category average of 7.6% and the category benchmark of 8.5%. Yet despite this, the fund is still a first-quartile performer with 1-, 3-, and 5-year compound returns of 3.6%, 17.6%, and -1.3%, respectively. Combine this with below-average volatility, and it’s no wonder this fund is an A-Grade performer and an A+ Rating winner for 2011.
Manager David Winters of Wintergreen Advisers uses a deep-value investment approach to build a concentrated portfolio of global securities that he feels are significantly undervalued. At the end of December, top holdings included multinational conglomerate Jardine Matheson Holdings and British American Tobacco Plc. These two holdings alone account for over 14% of the fund’s assets.
The fund focuses on long-term growth and has a flexible mandate, allowing Mr. Winters to invest anywhere he finds value. Portfolio turnover is low, and the returns tend to be less correlated with the market than most funds in the category. Correlation with the Dow Jones Global TR Index (C$) is 0.76, well below the Global Equity average of 0.86.
The fund is available in front-, back-, and low-load options and can be purchased with as little as $500. The current MER is 2.74%, slightly below the category average, making it an affordable choice in the Global Equity space.
Steadyhand Small-Cap Equity Fund
Shortly after its five-year anniversary, the Steadyhand Small-Cap Equity Fund is still going strong. Managed by Wutherich & Company, this benchmark beater is consistently at the top of the Small/Mid-Cap food chain. It’s tough to find a period during which this fund lost money, the only one being in 2008. But despite that loss of almost 30%, the fund has managed a 5-year compound return of 7.8%. The most impressive number might be the 1-year return of 14.5% compared with the BMO Canadian Small Cap index return of -9.8% and the Canadian Focused Small/Mid Cap Equity category average return of -9.3%. This represents a surplus of 24.3 percentage points over the benchmark and 23.8 percentage points over the group average. Equally impressive is the MER at just 1.78% with a $10,000 investment, compared with the group average of 2.71%.
Wutherich & Company typically manages very concentrated portfolios, and this one is no exception, with the number of holdings consistently staying in the 15 to 20 range. As of December 2011, the top holdings included Canadian Helicopter Group Inc. (TSX: CHL.A), Coastal Energy Co. (TSX: CEN), and Stantec Inc. (TSX: STN). The geographic targets are 80% Canadian and 20% U.S., with an average market cap over the last three years of just over $550 million.
The 3-year annualized standard deviation of 11.6% is much lower than you would expect from a small-cap fund with high returns. The average for the category is at 16.5%. The prospectus risk is listed as “Above Average.”
Reid Baker is Senior Analyst in the department of Investment Analytics and Research at Fundata Canada Inc., a leading source for investment fund information. He is Chairman of the Canadian Investment Funds Standards Committee (CIFSC).
Brian Bridger, CFA, FRM, is Manager of Analytics and Data Operations at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.
Notes and Disclaimers
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual 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. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.