| Fund Company | Sentry Investments |
| Fund Type | Canadian Focused Equity |
| Rating | C |
| Style | Mid Cap Growth |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | John Kim since January 2009 |
| MER | 3.20% |
| Code | NCE 722 – Front End Units NCE 322 – DSC Units |
| Minimum Investment | $500 |
Analysis: An interesting way think of this fund is that it is like a “hedge fund light”. Along with having a go anywhere mandate, no restrictions on geography or market capitalization, it can also use derivatives and short selling as a way to hedge risk and gain incremental return.
In selection stocks, John Kim, who took over the lead manager job in August of 2011 after the departure of Andrew McCreath, uses a top down screening process combined with a bottom up stock selection process to build the portfolio.
The first step is to screen the investible universe of over 3,000 companies on several metrics including return on equity, return on invested capital, free cash flow, valuation and market cap. Once the list of companies has been narrowed, the team conducts a detailed, fundamental review of the company, its competitors and customers to validate the accuracy of the financial statements.
They will invest in any companies they feel to be fairly valued and will sell short any company that they feel to be overvalued. Macro factors and technical indicators are used to help set the fund’s asset mix and sector exposure.
Cash is used tactically to help mitigate downside risk. If they feel markets are getting too “toppy”, they will raise cash. They will also use options to help mitigate risk and use high yield fixed income and covered calls to enhance returns.
The portfolio is well diversified with the top ten making up around 20% of the fund. It is fairly balanced from a sector point of view, holding about a 15% exposure in industrials, energy, consumer discretionary and financials. The current asset mix is 27% in cash, 10% in fixed income with the rest invested in equities.
The high cash balance is not necessarily an indication of their outlook on the market, since they are required to maintain 150% cash cover for each short position. The manager is very active in employing their investment strategy. Portfolio turnover has averaged just under 200% since 2007.
They are currently favouring the mid cap space where they are finding companies that offer similar metrics as large cap stocks, but with higher growth prospects.
The biggest drawback to this fund is that it is expensive. It has an MER of 3.20%, which is high by any standard.
While we like the risk reward profile of this fund, it is likely not suitable as a core holding for most investors. The use of non traditional strategies leads us to believe that it is better used as a return enhancer as within an otherwise well diversified portfolio. We would treat this fund the same way we would treat other small / mid cap and sector offerings.