Trimark Income Growth Fund

Analysis: This is a fund that is currently in transition, and on paper, the prognosis looks good. The equity portion of the fund is managed by the team of Clayton Zacharias, Mark Uptigrove, and Alan Mannik. This trio took the reins in the middle of 2012, and run their portion in an identical fashion to all other Trimark branded funds. They are looking to build a concentrated portfolio of high-quality Canadian stocks with strong management teams that are attractively priced relative to their historical earnings, cash flow and valuation record. Ideally, they are looking for names that are trading at least 30% below their estimate of its true value. Another solid aspect of their process is they take a relatively long term outlook, which affords them the ability to remain patient to allow their investment thesis to develop.

Like other Trimark funds, they are benchmark agnostic, meaning they can invest in companies of any size, operating in any sector of the market. At the end of August, they were overweight energy, technology and healthcare, with significant underweights in materials and consumer focused names. There was also a meaningful exposure to mid-cap stocks.

There is also a new team in charge of the fixed income portion of the fund, after industry veteran Jennifer Hartviksen was tapped to run the bond team. With Ms. Hartviksen’s arrival, the focus of the bond component shifted heavily towards corporate bond, which now make up more than two-thirds of the fixed income sleeve. I believe this to be a very prudent move in light of the current rate outlook, as I expect that corporates should outperform government bonds.

The fund has a target asset mix of the traditional 60% equities and 40% fixed income, but the managers have flexibility around those targets. The asset mix is set by Mr. Zacharias with input from both the equity and fixed income. Like other Trimark branded funds, it is currently holding a significant cash balance, currently around 17%. Rounding out the mix are equities, which make up 53% and bonds are roughly 30%.

Over the long term, I would expect that the recent changes will be a positive for the fund. However, it’s a bit too early to tell. Performance YTD has lagged, but much of that may be attributed to the high cash balance. The managers remain cautiously optimistic and looking to use some of their cash holdings should we see a market correction that will allow them to pick up some good companies at favourable valuations.

I too am cautiously optimistic on the fund. I like the changes that have been made and believe that we should start to see a turnaround in performance over the next few quarters. Still, I will be taking a more wait and see approach, waiting for proof that the changes have indeed been positive.