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The Mawer Global Small Cap Fund has now been around for over 11 years (it debuted in October 2007), having consistently delivered excellent returns on both and absolute and risk-adjusted basis. Its 10-year average annual compounded rate of return to March 31 was 20.1%, double the 9.9% Global Small/Mid Cap category average and markedly over the 13% posted by MSCI World Small Cap Index. Perhaps more impressive is the consistency of performance.
Since its launch, the fund has trailed its peers in only two years, 2010 and 2016. A key to this outperformance is the fund’s downside protection, outperforming the index in falling markets.
To achieve this, managers Paul Moroz and Christian Deckart, who was promoted to lead manager in January 2018, use 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.
The managers also spend a great deal of time focusing on a company’s management. Once they have identified a potential investment candidate, they build out and stress-test financial models under a number of different scenarios.
The managers are also careful to ensure they are buying a company at a level that is well below their estimate of its true worth. Their approach is a patient one, and when they buy a stock, they expect to hold it for 10 years or longer. In reality, the average holding period comes in at around six to eight years.
The portfolio is rather diversified at 70 names, with the top 10 representing about a third of the assets. Country and sector weights are the result of the bottom-up stock selection process. And at the end of March, the fund was aggressively positioned with about 93% invested in equities and roughly 7% in cash.
As of the end of February, top holdings included U.K. infrastructure and services provider Softcat PLC (LSE: SCT), and U.K. technical product specialist Diploma PLC (LSE: DPLM), Australian business management software supplier Myob Group Ltd. (ASX: MYO), German IT systems provider Bechtle AG (DE: BC8.F), and Swedish building systems supplier Bravida Holding AB (ST: BRAV).
Sectorally, the fund is positioned for growth, with an overweight in technology, industrials, and consumer defensives. It has no exposure to utilities or telecoms, and very little in real estate, which reduces its interest rate sensitivity. Geographically, the fund has its largest weightings to the U.K. and Europe (about 56%), Asia (26%), and comparatively little exposure to North America (15%).
The fund continues to be an excellent pick for those looking for global small cap exposure. Given the potential risks, I don’t see this as a core holding. Instead, it can be a great addition to an otherwise well-diversified portfolio.
Mawer Global Small Cap Fund
Fund company: Mawer Investment Management
Fund type: Global Small/Mid Cap Equity
FundGrade rating: A (March)
Style: Small Cap Blend
Risk level: Medium
Load status: No load
RRSP/RRIF suitability: Excellent
Manager: Christian Deckart since July 2015; Paul Moroz since October 2007
MER: 1.76%
Fund code: MAW150
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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