| Fund Company | Sentry Investments |
|---|---|
| Fund Type | Cdn Small / Mid Cap Equity |
| Rating | A |
| Style | Mid-Cap Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| Manager | Aubrey Hearn since May 2006 |
| Michael Simpson since Mar. ‘08 | |
| MER | 2.72% |
| Fund Code | NCE 721 – Front End Units |
| NCE 321 – DSC Units | |
| Minimum Investment | $500 |
Analysis: This fund just keeps delivering, posting an impressive 7% gain in the first quarter, handily outpacing both the benchmark and its peer group. Much of this outperformance is attributed to the investment process used by the managers.
This fund is very similar to the highly regarded Sentry Canadian Income Fund, with the key difference being its focus on small and mad-cap names. An ideal investment candidate will have a high return on capital, low leverage, rising free cash flow, low earnings volatility, strong management teams, high barriers to entry, sustainable competitive advantages, and the ability to consistently grow their dividends over time.
It is diversified, holding approximately 60 names, with the top ten making up less than 30%. With its emphasis on income, it is significantly underweight in energy, materials, and somewhat surprisingly, financials. The portfolio is positioned for an economic recovery, with a heavy emphasis on consumer and industrial names.
The fund can invest up to 49% of its holdings outside of Canada, and they have been taking advantage of that. In the first quarter, their U.S. holdings were strong contributors to the outperformance.
I would expect the U.S. holdings will remain high for a couple reasons. First, management believes that growth in the U.S. will continue to outpace Canada for the next few months. Second is the fund, now with more than $1.5 billion in assets, must look beyond Canada to find suitable investment opportunities that meet the manager’s valuation criteria.
The size of the fund is definitely something I am monitoring to make sure it does not have a negative effect on the risk re-ward profile on the fund. So far, I have not noticed any meaningful erosion, but will continue to watch the fund closely.
This is also a good option for those looking for cash flow. It pays a monthly distribution of $0.05 per unit, which at current prices is a yield of 2.7%.
While I don’t believe that the historic level of returns are sustainable going forward, I still expect that it will continue to deliver above average returns with below average risk.