| Fund Company | Brandes Investment Partners |
| Fund Type | Canadian Focused Small / Mid Cap Equity |
| Rating | $ |
| Style | Value |
| Risk Level | High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Poor |
| TFSA Suitability | Poor |
| Manager | Brandes Management Team |
| MER | 2.69% |
| Code | BIP 121 – Front End Units BIP 221 – DSC Units BIP 219 – Low Load Units |
| Minimum Investment | $500 |
Analysis: Despite a marked improvement in the fund’s short term performance, this is not a fund that we can recommend to investors for a number of reasons. First is volatility. While small cap funds tend to be more volatile than their large cap brethren, this fund is significantly more volatile than both the benchmark and its peer group.
Volatility isn’t necessarily a bad thing, but in our opinion, the higher the volatility, the more excess return that a fund has to generate on a consistent basis to justify the excess risk. The fund has lagged the benchmark in six of the nine calendar years since its launch. The fund’s nine year return is 2.1%, compared with 10.3% for the BMO Canadian Small Cap Index.
But there are some reasons to be reasonably optimistic about this fund. First, the fund is managed using a deep value approach that looks to buy stocks that are trading well below their estimate of its true value. As of December 31, the fundamentals of the fund were at or near historic lows, which should allow for a strong run as market values begin to move higher towards the intrinsic value.
Foreign content exposure for the fund is obtained by investing in the Brandes Global Equity Fund, which as of December 31 was a third of the fund. With the Canadian equity holdings, the portfolio is fairly concentrated holding 22 positions with the top ten holdings making up about half of the fund. Despite being managed using a bottom up approach, there are controls in place surrounding maximum holding size and sector exposure. For example, at the time of purchase, the maximum position size is limited to 5% of the fund and sectors are limited to 20% of the fund. It has the ability to invest in companies of any size.
The fund is significantly overweight in consumer focused stocks and technology, and has very little exposure to energy and materials. Portfolio turnover is modest, averaging just less than 40% per year, which implies that a position in the fund is typically held for just under three years. The cost of the fund is high, with an MER of 2.69%.
While we have been encouraged by the stronger short term returns, we believe that it is still too early to upgrade the fund’s rating in a meaningful way.