Sentry Diversified Equity Fund

Analysis: This is a fund that is tough to classify. I see it almost as a blend between the large cap focused Sentry Canadian Income Fund and the Sentry Small and Mid Cap Income Fund.

It is managed using the same investment process that looks for companies that have a number of key characteristics including 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. The biggest difference is it has an average company size that is somewhere between the two funds.

It is very much a bottom up approach that results in a portfolio that looks much different from the benchmark. It is underweight financials and real estate, while overweight industrial, healthcare and consumer names. It is fairly diversified, holding around 50 names with the top ten making up a little more than 30% of the fund. Mr. Simpson is very active in managing the fund, with portfolio turnover levels averaging well in excess of 200% for the past five years.

Performance has been very strong, gaining 16.4% over the past three years, outpacing both the index and the peer group. Perhaps more impressive is this has been done with levels of volatility that are well below average.

They have also done an excellent job at protecting capital in down markets. Typically, the fund has experienced less than 40% of the downside of the broader market, while still participating in more than three quarters of the upside.

Considering the above, it is a solid fund offering, and based on its manager and process I would expect it to continue to deliver above average returns with lower than average risk. I am not quite sure how to use this in a portfolio though, with its all cap mandate. Given it’s small to mid-cap skew, I would be reluctant to use it as a core holding, but I it could be used as a portion of your equity sleeve.