| Fund Company | IA Clarington Investments Inc. |
| Fund Type | Canadian Small / Mid Cap Equity |
| Rating | A |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Joe Jugovic since March 2007
Ian Cooke since November 2008 |
| MER | 2.94% |
| Code | CCM 520 – Front End Units
CCM 521 – DSC Units |
| Minimum Investment | $500 |
Analysis: I have to admit that I have been a fan of the QV managed small cap funds for as long as I’ve been in the business. The managers, Ian Cooke and Joe Jugovic look for high quality businesses run by strong management teams that are trading at attractive valuations.
Once a potential investment is identified, the team assess whether the companies truly have a sustainable competitive advantage that will allow them to deliver consistent cash flows. Once they determine this, they do a scenario analysis based on discounted cash flows to get an estimate of the intrinsic value of the company. They like to see companies trading at a significant discount.
The portfolio will be fairly concentrated, typically holding between 30 and 40 names. At the end of June, the top ten names made up about 40% of the fund. Sector exposure is largely the result of the stock selection process, but more often than not have exposure to at least seven of the ten sectors. They are not afraid to make sector calls. At the end of June, it was significantly underweight materials and real estate, while overweight in financials and consumer names.
Performance, particularly over the long term has been excellent. For the three years ending August 31, it has gained an annualized return of more than 23%, leaving most of its competitors in the dust. Even more impressive, the fund’s volatility is about two-thirds that of the average small cap fund, and it has unbelievable downside protection.
If I had to pick a fault with the fund, it is that it is quite expensive with an MER of 2.94%. This is well in the upper half of its peer group. Another issue to consider is the fund is much bigger than it used to be, meaning that the managers may have more difficulty in implementing their process with the same level of effectiveness. This mandate has been capped to institutional investors, and it is likely it will be closed to retail investors at some point soon. Until then, this remains one of the best small cap offerings available.