Please download the full report here.
During the fourth quarter, we made a number of changes to the Recommended List. Two funds were added to our list, one fund was removed, three funds were placed UNDER REVIEW, and one fund which had previously been placed UNDER REVIEW was fully reinstated to the list.
The changes which occurred are:
Fixed Income Funds
There were no additions or deletions to any of the funds in the fixed income category during the quarter.
Canadian Equity Funds
We added the RBC North American Value Fund to the list. The Fund is managed by Doug Raymond and Stu Kedwell using a multi stage portfolio construction process that incorporates both quantitative screening and fundamental bottom up analysis. Portfolio tends to be fairly well diversified, holding in excess of 100 names with the top 10 making up more than 30% of the fund. The fund can invest up to 49% of its assets in Non Canadian stocks.
We added the BMO Guardian Enterprise Fund to the list. The fund is managed by Martin Ferguson of Mawer Investment Management and is very similar to the Mawer New Canada Fund, which has consistently been one of the best small cap funds in the country. The manager uses a fundamentally driven, GARP investment process, focusing on market caps of $1.2 billion or less. Once the universe is narrowed, a fundamental review is conducted, focusing on such things as financial strength, business strategies, and a competitive advantage that will allow for the generation of free cash flows. The portfolio tends to be fairly concentrated, holding between 50 and 60 names with the top 10 making up approximately 55% of the fund.
We placed the AGF Canadian Small Cap Fund UNDER REVIEW during the quarter. We have been noticing an erosion in the risk reward profile of the fund for the past couple of quarters. We will monitor the fund closely, however, if we do not notice an improvement, we will be removing the fund from the list.
U.S. Equity Funds
We removed the Fidelity American Disciplined Equity Fund from the list. There were two main reasons for the fund to be removed. First, the recent performance of the fund had been disappointing, lagging both the index and its peer group. The second reason for the removal is that we expect the markets to remain volatile going forward. As such, we believe that an actively managed fund will have a much better chance at adding value and preserving capital in such a market environment. Given the sector neutral way in which this fund is managed, we feel that there are better, more active options available.
Global Equity Funds
During the quarter we placed the Cundill Value Fund UNDER REVIEW. Of late, the fund has been posting very disappointing returns on both an absolute and relative basis. While some of the performance may be attributable to the Cundill style being out of favour, there are other large cap value funds that have performed much better than the Cundill Value Fund. We will monitor this fund for a quarter or two to try to determine if it is purely a style issue a style issue or if the November 2010 departure of Jim Thomson is having a bigger impact on the returns of the fund.
Specialty / Sector Funds
We removed the UNDER REVIEW rating from the BMO Guardian Asian Growth and Income Fund. The fund had been UNDER REVIEW since March 2011, after the resignation of lead manager Andrew Foster. At the time, we were concerned that the managers may be spread a little thin given that new co-lead-manager Robert Horrocks, who is also the firm’s Chief Investment Officer. In December 2011, the team added Kenneth Lowe as a co-manager on the fund. Additionally, we have not noticed a significant erosion in the risk reward profile of the fund since the manager change. Given the addition to the team, combined with the strong risk adjusted returns, we were comfortable in reinstating our rating on the Fund.
Balanced Funds
We placed the CI Signature Canadian Balanced Fund UNDER REVIEW. We have noticed an erosion in the risk reward profile of the fund. The fund has also begun to lag not only the benchmark, but also the peer group. Return has declined, while volatility has increased slightly. Over the next several months we will be investigating to see if the cause is style related or a breakdown in the investment process.
You can download the full Recommended List of Funds report here