| Fund Company | Front Street Capital |
| Fund Type | Natural Resources Equity |
| Rating | B |
| Style | Growth |
| Risk Level | Very High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Poor |
| TFSA Suitability | Poor |
| Manager | Normand Lamarche since August 1999 |
| MER | 3.03% |
| Code | FSC 451 – Front End Units
FSC 450 – Low Load Units |
| Minimum Investment | $500 |
Analysis: Managed by respected veteran manager Norm Lamanch, this fund currently focuses on small and mid-sized resource companies, with a current concentration in small and microcap companies. Technically, the fund can invest in any sector, but it has been heavily focused on energy.
In managing the fund, Mr. Lamarche uses a top down / bottom up approach, looking for macro factors to identify potentially profitable sectors and bottom up analysis to find those companies they believe positioned to benefit. Recently, he has become excited about the lower cost shale gas and oil plays that are expected to change the U.S. manufacturing sector.
This enthusiasm is reflected by the fund’s positioning. At the end of February, the focus was on energy, with more than 70% being invested in oil & gas exploration companies, 11% invested in energy services companies, and 6% invested in drilling. The rest was invested in gold and mining related companies. Despite holding more than 100 names, it is fairly concentrated, with the top ten names making up 55% of the fund.
The fund has been on a tear of late, gaining nearly 18% so far in 2014. These gains have been propelled by a few names in the fund, particularly Augusta Resources that has more than doubled in the past three months, and Parex Resources and Birchcliff Energy, both of which have gained more than 40%. The long term performance has also been relatively decent, managing to outpace many of its competitors.
Not surprisingly, with its focus on the resource sector, volatility has been significantly higher than the broader equity markets, and has been above its peer group.
This is not a cheap fund. The base management fee is 2.50%, plus operating expenses. In addition, it has a 20% performance fee on performance of the fund over and above the performance of the S&P/TSX Composite Index. The most recent MER is 3.05%, but with the recent gains I would expect that to be much higher in the next year or two.
This is not for everybody. Investors will want to be sure that they are very comfortable of the very high level of risk that they can continue to expect for this fund. This is particularly true with its small and microcap focus.
In the energy space, I prefer the Franklin Bissett Energy Fund (TML 3021), because it is more diversified, with more of the fund invested in large, and mid cap names. You may miss out on some of the pop of this fund, but longer term, I believe that the risk adjusted returns will be better. Still, it’s a highly focused fund, and any exposure within a portfolio should be limited.