| Fund Company | Mackenzie Financial Corporation |
| Fund Type | Global Equity |
| Rating | D |
| Style | Deep Value |
| Risk Level | Medium High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Andrew Massie since August 2004 |
| MER | 2.56% |
| Code | MFC 736 – Front End Units MFC 836 – DSC Units |
| Minimum Investment | $500 |
Analysis: For as long as I can remember, the Cundill Value Fund had been one of my favourites in the global equity space. It offered decent returns with relatively low levels of volatility. That all started to change in the past year or so when we saw the volatility of the fund increase substantially, to the point where we removed it from our Recommended List of Funds.
We spoke with management back in the summer and were assured that there was no change to their process. They are deep value managers who are looking to build a concentrated portfolio of global stocks that are trading at least a 40% discount to their estimate of its intrinsic value. They will typically sell a stock once it becomes fully valued. Because they are bottom up managers, the portfolio is built on a stock by stock basis and the end portfolio will look nothing like its benchmark.
In our summer chat, they said that it was their disciplined process that was responsible for the uptick in volatility and cited a number of reasons to support that. They said that their deep value approach resulted in higher exposure to U.S. banks and technology, which offer compelling discounts to intrinsic value, but have been more volatile than they have been on a historic basis recently. They also claim that the concentrated nature of the portfolio is another cause. The portfolio holds 32 names with the top ten making up 56% of the fund. With that type of concentration, you can’t really hide any mistakes and an uptick in volatility in only a few names will be felt by the entire portfolio.
Another troubling development with this fund was that in September, David Tiley, the co manager left the firm. He was responsible for covering international equities, specifically Europe within the Cundill team. His duties have since been reassigned to other members of the team.
At October 31, the fund held 15% cash, which they are viewing as “dry powder” and will deploy it as investment opportunities arise. The portfolio continues to trade at a discount to NAV which indicates that there is more upside for the fund.
We are firm believers in the investment style and process that the team employs and are confident that over the long term, the fund will see an increase in value. However, until the elevated volatility subsides, we cannot be comfortable with this fund for anyone other than those with high risk tolerances and long term time.