EdgePoint Global Portfolio

Analysis: At EdgePoint, the investment philosophy is very simple – business people buying businesses. In managing their funds, they look to buy high quality companies that are trading at prices below their estimate of their true worth. They employ a fundamentally driven, bottom up investment process that is based on the old Trimark approach.

The portfolio is very concentrated holding 37 stocks, with the top 10 holdings making up nearly 40% of the fund. Given the investment approach, they are benchmark agnostic. As a result, the fund looks nothing like its benchmark, holding significant overweight positions in technology and healthcare. It has very little exposure to energy and materials, which is not surprising given their emphasis on sustainable free cash flow.

The fund has a go anywhere mandate but at the end of August, two thirds of the fund was invested in the U.S. It can invest in companies of any size. Just under 40% of the fund is invested in large caps, a third is invested in mid caps and the rest is invested in small and micro cap names.

The managers take a long term view when analyzing a company. As a result, portfolio turnover has been relatively modest, averaging just north of 30% since inception. A company is typically sold for two reasons. The first is that the investment thesis on which the company was added is no longer valid. The second reason is that the team has been able to find a better investment idea which they believe improves the portfolio.

Performance since inception has been very strong. For the three years ending October 31, the fund gained an annualized 16.3% while the MSCI World Index gained 13.5%. During this same period, it outperformed 98% of all the global equity funds in Canada.

One drawback to this fund is that it is likely to be more volatile than the index and many other global equity funds. Since inception, it has shown a level of volatility that is about a third higher than the benchmark. Given the concentrated portfolio, it’s all cap focus, and disciplined management style, I would expect that volatility will remain higher than average.

The cost of the fund is reasonable. The MER is 2.21% for the front end version and 2.48% for the back end version.

While I like this fund, I’m not sure I’m comfortable recommending it as a core holding for everybody. The primary reason for that is I believe that it will be more volatile than many other global equity funds. If you have a longer term time horizon and can stomach some short term underperformance in exchange for the probability of longer term outperformance, then this is a great fund to consider. If you have a shorter time horizon or are uncomfortable with higher volatility, you will want to look elsewhere.