Mawer Global Small Cap Fund

Analysis: Like other Mawer funds, this go anywhere small cap fund looks to build a well diversified portfolio of well managed companies that are trading at a discount to the firm’s estimate of its true worth. They use a very disciplined, bottom up approach that helps them find companies that have sustainable competitive advantages that will allow them to earn a return for shareholders that is above their cost of capital. They are patient and long term focused in their approach, which is reflected in the fund’s portfolio turnover that has averaged less than 20% in the past five years.

It is quite a diversified portfolio holding 69 companies across 21 different countries. As of December 31, the largest allocation was to the United Kingdom, which made up nearly 30% of the fund. It is also quite diversified across sectors, with technology, financials, consumer discretionary and industrials making up the lions share. Cash is currently at 13%, which can be a double-edged sword. Obviously it is a great buffer against potential market volatility, and provides the manager with “dry powder” if any attractive investment opportunities are found. However, it can be a drag on performance, should markets rally sharply higher.

2012 was a good year for the fund, gaining 29.5%, outpacing the Dow Jones Global Small Cap Index that rose by nearly 17%. The longer-term numbers are equally impressive, with an annualized five-year return of 8.1%, more than four times the 1.9% gain posted by the index. Volatility has been reasonable, in line with both the index and the category average.

In isolation, the MER appears low at 1.85%, which is lower than the category average of 2.70%. However, this does not include any advisor compensation, which typically can add up to 1% to the total cost of owning a fund. Considering this, we believe that the cost is a touch on the high side, but is still a cheaper option for a do it yourself investor.

On balance, we believe that this is a very solid offering for investors who are looking for global small cap exposure. It offers a good management team, a disciplined repeatable process, and a very compelling risk reward profile. However, given its focus on small caps, it does have the potential to be very volatile and could experience sharp drops in value. Considering this, those with less appetite for risk may want to limit their exposure to this fund within their portfolios.