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Managed by Mawer’s Grayson Witcher since May 2009, and Colin Wong, since January 2016, the Mawer U.S. Equity Fund’s bottom-up research-driven investment process looks for well managed companies with a history of attractive return on capital, strong balance sheets, and a record of delivering strong operational and financial results. Valuation is a consideration, and the manager aims to buy names trading below their estimate of true worth. The strategy has delivered long-term outperformance for the fund, resulting in multi-year FundGrade A+ Awards, from 2014 to 2018, and a perennial monthly FundGrade A grade.
The managers do extensive research on any company they researching as an investment candidate, looking closely at its management and its competition, stress testing his models through intensive scenario analysis for a deeper understanding of a company’s fundamentals and valuation. The process is long-term focused and very patient, with portfolio turnover averaging less than 25% for the past five years.
The result is a well-diversified portfolio that holds roughly 65 names, with the top 10 making up about 40% of total assets. Sector positions are capped at 20% of the fund based on book value. And at the end of September 2019, the latest available information, financial stocks comprised the largest sector exposure, at 20%. Information technology also got a heavy weighting in the portfolio, at 18%, while healthcare was third largest at 14%.
Top holdings at the end of September 2019 included Verisk Analytics Inc. (NSD: VRSK), Marsh & McLennan Companies, Inc. (NYSE: MMC), Visa Inc. Class A (NYSE: V), Alphabet Inc. Class C (NSD: GOOG), and Comcast Corporation Class A (NSD: CMCSA).
The managers note four major uncertainties likely to affect markets: slowing economic growth; the depth and velocity of technological change; the impact of low interest rates; and investor psychology. They are also closely monitoring the impact low interest rates may have over the long-term, given that it’s difficult to diversify away from interest rates as any asset valued on future cash flows, including both bonds and stocks, has interest rate risk and varying sensitivities.
The fund is defensively positioned, and currency exposure is unhedged. The rationale is that the U.S. dollar is a reserve currency with safe-haven status in times of market selloffs. This is expected to lead to better returns in Canadian dollars.
Short- and long-term performance has been excellent, with the fund has delivering top-quartile performance over the past 1-, 3-, 5-, 10-year periods to Dec. 31, 2019. Volatility has been slightly lower than the index, resulting in better risk-adjusted returns compared with the peer group.
While it’s difficult to add value in U.S. equity, this fund, with an MER of 1.15%, is an excellent choice. For those working with an advisor, a fee-based version is available as the Manulife U.S. Equity Fund at a slightly higher cost.
Mawer U.S. Equity Fund
Fund company: Mawer Investment Management
Fund type: U.S. Equity
FundGrade Rating: A (December)
FundGrade A+ Awards: 2014-2018
Style: Large-Cap Growth
Risk level: Medium
Load status: No-load
RRSP/RRIF suitability: Good
Manager: Grayson Witcher since May 2009; Colin Wong since January 2016
MER: 1.16%
Fund Code: MAW108 (No-load units)
Minimum investment: $5,000
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
Notes and Disclaimer
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Commissions, trailing commissions, management fees and expenses all may be associated with 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. This article is for information purposes only and is not intended as personalized investment advice.
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