– Recently, I added this to my Recommended List of Funds. It was more difficult decision to make than you would imagine. Not because it doesn’t belong on the list, but because it is a very similar fund to one that was already on the list – the CI Can-Am Small Cap Fund. Both are managed by QV Investors out of Calgary using a near identical process that looks for high quality businesses run by strong management teams that are trading at attractive valuations. Both funds are built on a bottom up basis, and tend to be fairly concentrated.
But they are also somewhat different, with the CI Can-Am Small Cap having more exposure to mid-cap names, and more than 22% invested in U.S. small cap stocks. It is this difference which ultimately tipped the scales towards the IA Clarington offering.
In a recent conversation with manager Joe Jugovic, he indicated that valuations in the U.S. small and mid-cap space were less attractive than what is available with Canadian small caps. Looking at the valuation metrics of both portfolios confirmed this, with the P/E ratio, operating margins, expected earnings growth, and the debt ratios favouring the IA Clarington Canadian Small Cap. Looking forward, while short term momentum may still favour the U.S. small caps, the valuation story in Canada is more compelling mid to long term. Because of that, I opted to make the switch.
That said, I still believe that the CI Can-Am Small Cap is a great fund. If you hold it, and are comfortable with it, I would not suggest that you make an immediate change. Going forward, I believe the environment slightly favours the Canada focused Clarington Canadian Small Cap.