IA Clarington Global Dividend Fund

Analysis: On June 11, it was announced that Joe Jugovic and the QV Investor team would take over the management duties of the IA Clarington Global Dividend Fund starting in July. The fund will be renamed the IA Clarington Global Equity Fund.

The fund will essentially have an all cap mandate, investing in companies that have a market cap of at least $1 billion. The team uses a bottom up investment process that looks for financially strong companies with proven track records, excellent management teams, and competitive products and services that have the ability to earn a sustainable return. Another critical factor considered is the ability to pay and increase dividends over time.

It is expected that the portfolio will be made up of between 25 and 40 companies, and is expected to be well diversified across most sectors. The top ten would be expected to be in the 40% to 45% range.

Another positive of this change is IA Clarington expects that the MER will drop from the current 2.83% to a more reasonable 2.59%.

QV has elected to take the portfolio in cash, meaning that they should have their portfolio up and running within a very short period of time. Whenever there is significant turnover in a portfolio, there is the potential that significant capital gains may be triggered. In speaking with IA Clarington, they mentioned that there are significant loss carry forwards, which will offset any capital gains triggered, reducing the possibility of a taxable distribution for investors. Also, given QV’s relatively low turnover style, I wouldn’t expect significant trading gains to be generated in the near term, making this a relatively tax efficient option for non-registered accounts.

I am told that this fund will be managed in a near identical way to a global equity pooled fund managed by QV. I dug up the return data on that fund, adjusted it for the difference in costs, and ran some analytics on it. Based on my review, I estimate that for the five years ending May 31, the fund would have earned an annualized 13% if QV had managed it. This lags the 15% rise in the MSCI World Index over the same period. One of the hallmarks of QV is their low volatility style, and this fund is no different. For the past five years, their volatility was lower than both the index and its peer group. Taking this into account, the risk adjusted returns would have been well above average.

Having been a fan of QV for more than a decade, knowing their investment process, and management team, I see this as a very positive change for the fund. However, given the uncertainty that a change this significant can have on the fund, I would be likely to hold off a few months to make sure that the transition to QV goes smoother, and that they can continue to manage as they have in the past. I will revisit this fund in early 2015 to follow up on the progress.