Caldwell’s Canadian equity entry was able to deliver 6.9% for the six
months ended Feb. 28, and a 5-year average annual compounded rate of return
of 11.4%. For the 12-month period ending Feb. 28, the fund gained a solid
13.0%, compared with the relatively weak category average of 2.4%.
Jennifer Radman, vice president, head of North American equities, and senior portfolio
manager at Caldwell Investment Management in Toronto, the main reason this
fund has bucked the tide is its proprietary Momentum at a Reasonable Price
(MARP) screening and stock selection process.
Caldwell’s MARP model combines screening and ranking methodologies on a
custom set of 16 factors to produce a list of strict buy and sell
decisions. These choices are then further vetted by the portfolio
management team, using a fundamental research overlay that is geared to
minimizing risk. “We screen the markets daily based on 16 value and
momentum factors in order to rank all companies,” Radman explains. “The
quantitative modelling gives us buy signals, and then we vet the best ones,
because we’re not just going to buy whatever the screens show. We do a
qualitative analysis – is this something we want to own?”
The aim is to find companies that are undergoing a positive fundamental
change driven by company or industry-specific events. Since these events
are often independent of factors driving the overall market, there is
usually a low correlation to broader market moves – one obvious reason for
the fund’s outperformance relative to its peers. The portfolio itself is
highly concentrated and can range between 15 and 25 names, although the
count typically hovers around 20, according to Redman.
While value is a primary consideration, Radman points out that trying to
make decisions based on value alone can have some disadvantages. “
Traditional value stocks may have a lot of assets, but the problem is
that you often get periods of dead money,” she says. “These stocks may
look cheap, but they can get even cheaper.
The best example recently was Home Capital [Group of Toronto], which blew
right through its asset base.
“It’s particularly interesting when you combine value and momentum,”
Radman adds. “When you put them together, you can get a better
risk-adjusted return over time.
The momentum is going ahead of the stock price, and it is an indicator that
the market has started to recognize the stock’s true value.”
As an example of the type of company that results from their screening and
research processes, Radman cites Cambridge, Ontario-based
ATS Automation Tooling Systems Inc. (TSX: ATA), a provider of robotics systems for industrial manufacturing operations.
“It’s a market with strong secular growth resulting from several factors,”
she notes. “The use of robotics is increasing because of a tighter labor
market, higher wage rates, and quality control concerns.
“Also, the company recently hired a new chief executive officer with a
strong track record for optimizing efficiencies,” says Radman. “He has a
plan to increase margins by 400 to 500 basis points, and he has the
experience to be able to execute this plan. Meanwhile, the company
continues to benefit from strong secular growth.”
With $36.8 million in assets under management, as of Feb. 28, top holdings
CGI Group Inc. (TSX: GIB.A),
Premium Brands Holdings Corp. (TSX: PBH),
Cargojet Inc. (TSX: CJD),
IBI Group Inc. (TSX: IBG), and
Empire Co. Ltd. (TSX: EMP.A). The fund was overweighted to industrials, which comprised 36% of the
portfolio, with information technology at a 10% weighting. The fund
remained underweight in energy and consumer discretionary stocks.
Cash was a relatively high 36% at the end of February, but in their
February report, the managers stated, “we expect cash balances to move
lower as we progress through the CCVMF’s investment process.”
Olev Edur is an experienced financial and business journalist and a frequent
contributor to the Fund Library.
Notes and Disclaimers
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