| Fund Company | Sentry Investments |
| Fund Type | Canadian Small / Mid Cap Equity |
| Rating | A |
| Style | Mid-Cap Blend |
| Risk Level | Medium High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Aubrey Hearn since July 2005
Michael Simpson since July 2005 |
| MER | 2.72% |
| Code | NCE 721 – Front End Units
NCE 321 – DSC Units |
| Minimum Investment | $500 |
Analysis: This has been one of my favourite small and mid-cap offerings for nearly five years now. Managed by Aubrey Hearn and Michael Simpson, it has the duel objectives of providing consistent monthly income and capital growth, and has succeeded on both fronts. Since I began recommending the fund, it has outperformed its competition by a big margin, on both an absolute and risk adjusted basis.
It invests in the same type of companies as the highly regarded Sentry Canadian Income Fund. The key difference is this fund looks for small and mid-cap names, while the Canadian Income Fund tends to skew towards large cap companies. They look for companies that have high return on capital, low leverage, rising free cash flow, low earnings volatility, strong management teams, high barriers to entry, sustainable competitive advantages, and the ability to consistently grow their dividends over time.
It is fairly diversified, holding approximately 60 names, with the top ten making up less than 30%. With its emphasis on income, it is significantly underweight in energy, materials, and somewhat surprisingly, financials. The portfolio is positioned for an economic recovery, with a heavy emphasis on consumer and industrial names.
The fund can invest up to 49% of its holdings outside of Canada, and they have been taking advantage of that. At the end of October, it had 45% invested in the U.S., up significantly over the past few years. The main reason for that is management has struggled to find suitable opportunities in Canada, and have had to look abroad. At the end of October, it was fully invested, with a modest 1% cash balance.
It pays a monthly distribution of $0.05 per unit, which at current prices is a yield of approximately 2.8%.
My biggest concern of the fund is its cost, with an MER of 2.72%, which is above the category average. While high, the return generated has more than offset it. While I don’t believe that the historic level of returns are sustainable going forward, I still expect that it will continue to deliver above average returns with below average risk.