| Fund Company | IA Clarington Investments Inc. |
| Fund Type | U.S. Small / Mid Cap Equity |
| Rating | $$$ |
| Style | Value |
| Risk Level | Medium High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Larry Sarbit since June 2009 |
| MER | 2.68% |
| Code | CCM 150 – Front End Units CCM 151 – DSC Units |
| Minimum Investment | $500 |
Analysis: Since June 2009, this fund has been managed by Larry Sarbit using a Warren Buffet inspired, high conviction, bottom up, value driven investment process. His process is a tough one to classify as it really is a mix of both a growth and value style.
Basically, Larry is looking for what he calls “terrific businesses.” These are companies that have a strong franchise, very high barriers to entry, operate in an expanding market, and are generating high levels of free cash flow for investors. He also prefers businesses which operate using a very simple, easy to understand business model. He likes companies that can be explained in about thirty-seconds. “I look for businesses that any idiot can run, because sooner or later, some idiot will.”
Valuation is an important part of the process but only after all the other factors have been considered. There are many companies that are cheap, but not necessarily “terrific companies. He looks for companies that have a high margin of safety.
The fund is a high conviction portfolio, holding 17 names with the top 10 making up more than 70% of the fund. It can invest in companies of any size, but at the moment Larry is finding a number of opportunities in the mid cap space. The fund is overweight in consumer cyclical, consumer defensive and communication while very underweight in technology, industrials and healthcare.
Another aspect of the high conviction style is Larry’s willingness to hold large amounts of cash when there are no suitable investment candidates available. He did this while at the helm of the AIC American Value Fund, which at one point was 81% cash and held only three stocks, causing concern among more traditional investors.
Performance since Larry took over the fund has been first quartile, with a three year gain of 13.1%. Given the concentrated portfolio and mid cap focus of the fund, it is likely to be more volatile than other funds in the category. For example, in 2010, the fund nearly doubled the performance of the index, yet in 2011, it lagged both the index and the category.
Given this, we believe that this is a good fund for investors who have the patience to remain invested over the long term as it may be prone to periods of high volatility and underperformance.