When long-time manager Jerry Javasky stepped down in 2009, the reins of the fund were handed over to Paul Musson. When Mr. Javasky ran the fund, its stellar capital protection was legendary. Unfortunately, it was also known for its lackluster performance in up markets.
Today, with Mr. Musson running the show, the emphasis on downside protection remains firmly in focus, but now it does a much better job at providing decent gains when the markets are rising. For investors this means the potential for stronger overall risk adjusted returns over the long-term.
To do this, the managers have built a concentrated portfolio of around 40 Canadian and global names, that are all leaders in their industry. They use a fundamentally driven, bottom up process that looks for well-managed, high quality, financially sound companies that are trading at prices that make them attractive for the long-term.
The process is benchmark agnostic, and as a result, the portfolio looks quite different from its benchmark. It is underweight financials, and materials, but is significantly overweight in consumer focused names, healthcare and industrials.
Performance has improved, gaining an annualized 9.9% for the past three years, compared with a 5.0% rise in the S&P/TSX Composite. There are a couple of factors that helped this outperformance including an underweight to the hard hit energy sector, and a healthy exposure of non-Canadian stocks, which were helped by a falling Canadian dollar.
Volatility remains well below the index and the peer group. What is more impressive however is the improvement in the upside participation. According to Morningstar, the fund participated in more than 80% of the upside of the market, compared with only 50% over the past ten years.
I am really warming up to this fund and can see it being a great core holding for more conservative investors looking for Canadian equity exposure. I don’t expect it to shoot the lights out, but it shouldn’t hurt you when things get rough.