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Analysis: Since taking over this fund in 2006, David Winters has done a good job for investors in this go anywhere global equity fund. As of December 31, 2011, the five year return was a loss of 1.5% per year, which while disappointing in isolation, is strong on a relative basis, outpacing not only the MSCI World Index, but finishing firmly in the top quartile. Even more impressive is that the fund has delivered this level of outperformance with a level of volatility that is significantly lower than the category average.
Mr. Winters uses a value tilted approach, looking for strong businesses which offer an identified competitive advantage and a strong management that are trading at a discount to its intrinsic value. The investment process is very much a bottom up approach and the manager tends to take a long term, patient view when evaluating a stock. This is reflected in the fund’s portfolio turnover, which is approximately 30%.
The portfolio tends to be fairly concentrated, holding less than 40 names with the top 10 making up more than two thirds of the fund. It is benchmark agnostic, allowing the manager to be able to take significant sector bets when the risk reward trade-off warrants it. Cash is a by-product of the stock selection process. As of October 31, cash was approximately 13% of the fund.
Geographically, the fund is invested heavily in the U.S. and Canada, which combined make up just less than half of the fund. While avoiding direct exposure to the troubled euro zone, the fund has a 19% weighting in Switzerland and 14% in the UK.
The fund is pricey. The most recent MER for the fund is 2.74%, which is higher than the category average. Another concern stems from the concentration. Concentration can be a double edged sword, helping to amplify gains, but can also amplify losses as stock specific risk increases in a more concentrated portfolio. The largest holding makes up nearly 10% of the fund.
The fund is heavily focused on tobacco stocks. The investment rationale is that the tobacco companies generate significant cash flow to investors. However, for those following an ethical screen in their portfolios will want to avoid this fund.
Another risk of the fund is key person risk, as most of the heavy lifting is done by David Winters. Were something to happen to him, investors would be impacted significantly.