This deep value offering from Brandes had a very strong quarter, gaining 5.5%, matching the peer group, but lagging the index. It ended the year with a gain of more than 22%, putting it firmly in the upper quartile of all global small and mid-cap funds.
It is managed using a value focused process that looks to buy companies that are trading a significant discounts to their true value. On the surface it appears to be more volatile than its peers, with a standard deviation that is considerably higher than both the index and its competition. However, looking at upside and downside capture ratios, the fund still manages to do a good job at protecting investors’ capital.
It has had a heck of a run since the start of 2012, more than doubling, and delivering an annualized gain of more than 24% per year. Despite this, the portfolio’s underlying valuation metrics remain attractive when compared to the index and its competition. According to Morningstar, only the Mackenzie Cundill Recovery Fund, and the Vertex Value Fund have P/E ratios that are lower.
Given the recent strong run, I would expect to see the fund take a breather at some point. Still, with the more compelling valuation, it should hold up better than its peers. That has been the case so far in 2016, with the fund falling by 6.7% while the category average is down nearly 10%.
Longer term, I believe this fund, with its excellent management team, repeatable, disciplined investment process, and focus on valuation will continue to deliver above average returns for investors. However, with its very high active share, there may also be periods where the performance is out of step with the index and its peers.
If you are comfortable with this, the fund remains a great option for those looking for global small and mid-cap equity exposure.