CI Harbour Fund

Analysis: Until December 2012, this fund had been managed by respected veteran, Gerry Coleman, when he handed over the reins to longtime associate, Stephen Jenkins. Despite the change in manager, there hasn’t been any major changes to the investment process used in the fund.

It is still It is managed using a patient, bottom up and research intensive approach that invests in concentrated portfolio of 30 to 40 names. They look for industry leading companies with strong balance sheets and sustainable competitive advantages that can generate significant free cash flows. They look for good management teams who have proven that they are good allocators of capital with an eye for creating shareholder value. Once they find these opportunities, they must be trading at an attractive discount to their estimate of intrinsic value, so there is a margin of safety for investors. Ideally, they are looking for a discount of at least 50%.

Cash will still be used tactically when no investment opportunities that meet the manager’s criteria are available. At the end of November, it held 15% in cash. This will act as a buffer in volatile markets, but will drag performance when markets are rising.

Traditionally, the portfolio has been focused on quality, and that is still the case, however under Mr. Jenkins’ watch, valuation has become a slightly more important factor. This may result in underperformance in sharply rising markets, but over the long term, should not have a meaningful impact on performance.

At the end of the year, longer term numbers remained quite strong, however shorter term, it has underperformed. It gained 12.3% in 2013, slightly lagging the S&P/TSX Composite, but trailing its competition by a significant margin.

This fund remains on my Rec list for now, but the shorter term performance has become a bit of a concern. I will continue to watch it closely for any further erosion in the risk reward metrics of the fund.