This bottom up managed global equity fund has been one of my favourites for a long time now. The managers look for companies that are industry leaders, have strong barriers to entry, high levels of free cash flow, and excellent management teams that have a history of generating high returns on invested capital. The companies trade at a discount to what they believe the stock is worth. The result is a concentrated portfolio that holds between 30 and 50 names.
Performance has been excellent with a five year annualized gain of 14.6%, handily outpacing most of the competition. Because the portfolio tends to be fairly concentrated, it can be a bit more volatile at times, however over the longer term, because of the higher emphasis on quality, it has been of lower than average volatility.
The managers are expecting the recent volatility to continue, as a lot of uncertainty remains. If this happens, I see it as a positive for the fund for a couple of reasons. Historically, it has outperformed in volatile markets, which is a byproduct of the quality bias. Second, the managers tend to be more active in volatile periods, using market weakness as an opportunity to pick up attractive companies at compelling valuation levels. Currently, they are finding interesting ideas in the energy space and in the emerging markets. There is a risk to this in that they may be early in the space, which could have a negative impact on shorter term performance numbers. However, given their longer term view, they are comfortable being wrong in the short term to be right in the long-term.
I expect more volatility in the near term, but believe it is a great pick for those who can be patient. I prefer the “SC” Units over the “A” series units because of the much lower cost structure.