| Fund Company | NEI Investments |
| Fund Type | Canadian Small / Mid Cap Equity |
| Rating | B |
| Style | Value |
| Risk Level | Medium High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Joe Jugovic since March 2005 |
| MER | 2.84% |
| Code | NWT 067 – Front End Units NWT 167 – DSC Units |
| Minimum Investment | $500 |
Analysis: This Canadian small / mid cap equity fund has been managed by the team of Ian Cooke and Joe Jugovic at QV Investors since 2005. The QV in the name stands for quality and value, which is how they evaluate stocks.
The first step is to identify quality companies and the second phase is to consider valuation levels. In doing this, they look for attractively valued companies that are managed by capable, honest management teams. Characteristics they look for include balance sheet discipline, a solid business plan and the potential to see growth in the company’s book value per share, sales per share and earnings per share, which they believe can help the company to sustain difficult periods.
Quality of management is a critical factor in their evaluation process and they look for managers who hold a significant stake in the business, which helps to ensure that their interests are aligned with the investors.
Once the companies have been identified, they are put through Ethical’s rigorous ESG screening criteria. Additionally, the company is very active in engaging companies to improve their environmental, social and governance policies.
The concentrated portfolio is fully invested in approximately 40 Canadian equities. Sector mix is largely the byproduct of the bottom up stock selection process. As of February 28, Financial and Energy made up just under 40% of the fund.
With their focus on quality, this fund tends to perform well in flat and falling markets, but often lags in a sharply rising market. This is because in that type of market, the quality companies tend to lag while the higher beta, more leveraged companies shine. Over the long term, quality should outperform.
Judging by the performance numbers, this appears to be true. For the 10 years ending February 28, the fund gained an annualized 11.4%, outpacing both the index and the category average. Equally impressive is the fact that the fund’s volatility has been lower than both the category and the index.
The biggest drawback to this fund is that it is fairly expensive, with an MER of 2.84%, which is in the upper half of the peer group.
This fund and it’s “un-ethical” peer, the IA Clarington Canadian Small Cap Fund are two of our favourites at the moment. Both offer investors a great management team and a disciplined process that should reward investors over the long term with above average risk adjusted returns.