Despite dropping nearly 2.5% in September, and another 5% in the first half of October, the Steadyhand Equity Fund is still up 6.7% on a year to date basis (as at October 15). This is well ahead of the pack.
There are a number of reasons it has been able to hold up better than many of its peers. The first is the managers, CGOV, focus only on high quality companies that have sustainable business models, a growing and sustainable dividend yield, and excellent management teams with a history of generating strong levels of free cash flow. While quality is a key consideration, so too is value. They will only buy a name if it is well below their estimate of intrinsic value. This allows for a margin of safety that will help to preserve value when things get rough.
This concept is also evidenced by their excellent downside capture ratio of under 30% over the past three years. This means that the fund, on average, has only participated in 30% of the downside of the broader Canadian market. Since the beginning of September, it has experienced about two-thirds the volatility of the S&P/TSX Composite. A rather impressive feat for such a concentrated portfolio.
As I indicated in my June review of this fund, their emphasis on downside protection and margin of safety will go a long way to outperformance over the long term. If nothing else, it has certainly helped during the recent volatility.