I have been growing increasingly concerned about this fund for the past few quarters. Manager David Winters uses a fundamentally driven, deep value approach that looks for undervalued and distressed companies of any size, that are out of favour with the broader market that have strong prospects for a significant return.
The portfolio looks nothing like the benchmark, and neither does its performance. Unfortunately, recent performance has lagged by a significant margin, and the risk / reward metrics have continued to erode. The manager is taking steps to improve the outlook for the fund, taking advantage of the selloff in Asia to add to their holdings in the region, particularly Hong Kong. At the end of September, more than a quarter of the equity holdings were invested in Asia. Cash within the portfolio was sitting at nearly 13%.
While I believe that over the long term China is likely to return to solid growth, I’m not sure the risks of this fund continue to justify keeping it on my recommended list in the near term.
Another factor in my decision is the fund is managed in a similar fashion to the Franklin Mutual Global Discovery Fund. Looking at the portfolio metrics of that fund leads me to favour it over this offering in the near term. Its holdings are more attractively valued on a number of criteria including Price to Earnings, Price to Book, and Price to Cash Flow. While its recent performance has been somewhat underwhelming, its risk reward characteristics have been improving. I continue to monitor that fund closely as well.