BMO Guardian Enterprise Fund

Analysis: This Canadian small/mid cap fund is virtually identical to the highly respected Mawer New Canada Fund, which has been capped to new investors for some time. While there may be some differences between the holdings, the overwhelming majority of the fund will be the same.

Both are managed using a bottom up, “growth at a reasonable price” approach that looks for wealth creating small cap companies with the ability to grow. The investment universe is limited to only those companies that have a market cap of less than $1.2 billion. When evaluating a company, they look for those that have a sustainable competitive advantage and the ability to deliver a high return on invested capital. Any stock in the portfolio must be trading at a level that is less than their estimate of its true worth, which is determined using discounted cash flow models.

The end portfolio is concentrated, holding between 40 and 60 names. As of December 31, the top ten holdings made up 46% of the fund. While sector weights are largely the byproduct of the stock selection process, there are some limits put in place for risk management purposes. The maximum weight for any one company is capped at 6%, while the maximum sector exposure is set at 20%. Management is fairly patient in their execution, with portfolio turnover averaging less than 20% for the past five years.

Costs are reasonable to high, with an MER of 2.25% for the “Classic” units and 2.75% for the “Mutual” units.

Long-term performance has been strong, with a five year annualized return of 5.8% as of December 31. In comparison, the BMO Nesbitt Burns Small Cap index posted a loss of 0.4% during the same period.

Considering all the above, it is our opinion that investors who are looking for small / mid cap Canadian equity exposure may want to consider this fund. It is more volatile than a fund that invests in large cap stocks, and investors should consider the risks when determining the concentration within their own portfolios.