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Analysis: Over the past couple of years, higher levels of volatility have become the norm. This has also been true in the natural resources sector, which has seen levels of volatility that have been significantly higher than the broader market indices. The Signature Canadian Resource Fund is one fund that has done a good job managing this volatility, with the lowest standard deviation of all of the resource funds in our coverage universe.
Manager Scott Vali and the Signature Team have been able to keep the volatility in check by emphasizing downside protection and by using cash in a tactical manner, increasing its weight in the portfolio in periods of high volatility. They focus predominantly on large cap resource companies located in Canada and around the world. The investment process uses a top down macro analysis which helps determine the sector and commodity exposure within the fund. They then undertake a bottom up stock selection process that looks for companies with strong fundamentals and the ability to deliver strong cash flows for investors.
Given the more conservative nature of this fund, it has had periods where it has lagged the benchmark, most notably in 2010 when the fund returned 15.4%, while the index was up by nearly 23%. Over the long term, the fund has consistently ranked in the upper half of the category.
The cost of the fund is reasonable, with an MER of 2.41%, which is approximately 20 basis points below the category median.
The fund is currently invested 51% in Canadian equities, 25% in U.S. equities with 13.9% invested in the European Union. The fund’s sector exposure is nearly equally split between energy and materials, with a 9% weighting in cash.
This fund has been one of our favourites in the category for some time, largely based on the manager’s focus on managing risk. This is not the flashiest fund in the category, but in our opinion is a good fund for long term focused investors seeking exposure to the resource sector.