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THE SMALL-CAP PASSION OF MAWER’S JEFF MO
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THE FUND INSIDE
Veteran business journalist and investigative reporter Olev Edur takes you behind the performance numbers for close-up look at the people, processes, and portfolios that make investment funds tick.
 



By Olev Edur  | Thursday, April 07, 2016


What can you say, without using superlatives, when two of the three top-performing funds in the Canadian small/mid-cap category over the past 10 years, and three of the top five performers in the category over the past five years, are all managed by the same individual? Hard to believe, but Jeff Mo, portfolio manager at Mawer Investment Management, has done just that. And racked up a long list of FundGrade A+ Awards™ to boot.

He runs not only Mawer’s in-house offering, Mawer New Canada Fund (11.1% ten-year and 10.8% five-year average annual compound returns through February 2016), but as sub-advisor, also manages the BMO Enterprise Fund Advisor Series (9.9% over 10 years, 10.8% over five years), and the HSBC Canadian Small Cap Equity Pooled Fund (12.3% over five years).

In fact, the Mawer New Canada Fund has been at or near the top of the long-term performance rankings for all funds in Canada throughout the past 28 years, with an impressive average annual compound return of 13.9% since inception in 1988. That means original investors have now earned almost 5.5 times their initial investment. That accounts for its FundGrade™ “A” rating for February, as well as its four consecutive annual FundGrade A+ Awards.

All three funds are managed identically, according to Mo, although operational variations may result in different performance during any given period. “The biggest differences are in the fee structures,” says Mo. “Mawer doesn’t have a fund specifically for advisors, for example, so we use [the BMO fund] to tackle the advisor channel.

“The other difference is in timing,” says Mo. “Withdrawals or contributions can have small timing differences, one fund may be slightly earlier or later, and that can affect returns.”

Small differences aside, how have Mo and his predecessor (Martin Ferguson, now retired) managed to maintain their top performance rankings so consistently for so long? What kinds of investments keep generating such stellar returns?

“We are bottom-up investors and look for a combination of good businesses with good management, trading at good prices,” Mo says. “What separates us from other funds is that we focus on a particular type of business model. We look for wealth-creating companies, meaning companies that earn returns on capital that are higher than their cost of capital.

  

“And we believe companies with a sustainable competitive advantage will generate wealth over a long period of time,” Mo adds, “so we buy them and then we hold them for a very long time.”

Sounds simple, at least in the telling, and this strategy has secondary benefits – the long-term holding strategy means low turnover (around 15% a year), which translates into low trading activity and hence a very low 1.45% MER for the Mawer fund (1.7% for HSBC, but a higher 2.8% for BMO’s Advisor fund). “We tend not to need a sprawling infrastructure,” says Mo.

And so all in all, there’s no way to avoid saying something to the effect that any of Mo’s funds would be a perfect core equity holding for any Canadian investor – there, the superlative is avoided, kind of. But lest you be tempted to call Mo right away, all three funds are now closed to further investment. “There’s a hard cap on all the funds – no new investors, and no new money from existing investors,” says Mo.

“Sometimes these funds are included in other funds, balanced funds for example, so you may be able to access them that way,” Mo adds. “It would likely be a small portion of the other fund’s portfolio – probably single digits. It depends on those funds’ access strategy. Our strategy is to have a hard cap across the board. We want to do what’s right for all our investors, and so we no longer dilute [their positions] with additional money.” 

Olev Edur is an experienced financial and business journalist and a frequent contributor to the Fund Library.

Notes and Disclaimers

© 2016 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without written permission is prohibited.

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. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

 
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