Fund in Focus: Mawer New Canada Fund

Current unitholders should stick with this winner

In the Canadian small- and mid-cap space, Mawer has consistently been one of the top managers, delivering above-average long-term results to investors, with below-average volatility and strong downside protection. I haven’t written about Mawer New Canada Fund for the simple reason that it has been closed to new investors for about as long as I can remember. While this can be frustrating, it highlights the commitment Mawer has to its investors, closing the fund when the managers realized they could no longer implement their investment strategy with the same level of effectiveness.

For those who own the fund, that’s been a big win. Its 5-year average annual compounded rate of return to Aug. 31 is 8.9%, nearly triple the Canadian Small and Mid Cap Income category average of 3.0% for the same period. More impressive, it has posted only one calendar year of below-average returns in the past 10, in 2010. Shorter-term results are equally impressive, with the fund posting a year-to-date gain of 6.0% compared with the category average loss of 2%.

These numbers are achieved through consistency and discipline. Manager Jeff Mo took over the reins in 2016 but has been on the team since 2012. He uses a highly disciplined, research-focused, bottom-up investment process, looking for companies with strong business models that earn a high return on capital arising from a sustainable competitive advantage. Mr. Mo does not specifically target any industries or sectors.

The team also spends a great deal of time focusing on a company’s management. Once they have identified a potential investment candidate, the managers build out and stress-test financial models under a number of different scenarios and invest only at a level that is well below their estimate of a company’s true worth.

Their patient, long-term, research-intensive approach allows them to give holdings a bit of runway and companies time to execute their strategy. Changes to the portfolio are made only when a better opportunity arises, there’s an erosion in a company’s fundamentals, or there’s a change in valuation.

Volatility has been slightly lower than the category average. And in down markets, the fund has held up very well, participating in less than 20% of the downside of the small-cap market over the past three and five years.

This is an excellent fund. I believe those who are fortunate enough to own units should continue holding if it is within your risk tolerance and investment objectives.

Mawer New Canada Fund
Fund company: Mawer Investment Management Ltd.
Fund type: Canadian Small Mid Cap Income
FundGrade: A (August)
Fundata FundGrade A+ Awards: 2015-2019
Style: Bottom up
Risk level: Medium
Load status: No-load
RRSP/RRIF suitability: Excellent
Manager: Jeff Mo since July 2012
MER: 1.36%
Fund code: MAW107
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

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. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.