This high conviction, Canadian small and mid-cap fund had been a staple on my Recommended List of Funds until a year ago, when I removed it because it was closed to new investors.
From a timing standpoint, this makes me look pretty good, given the fund struggled in 2015, posting a 24.5% loss, and was one of the weakest performing funds in the category. I spoke with Jason Whiting in early January about the fund. He attributed the poor performance in 2015 to a couple of things.
The first was their decision to start adding to energy names in the latter half of the year. The companies in which they invested met all their key buy criteria; high quality businesses, strong management teams, and compelling valuation metrics. They sought out energy names that had much less sensitivity to the price of oil and had strong balance sheets and predictable cash flows. Unfortunately, they were all dragged lower in the continuing energy swoon.
Another area that hurt the fund over the past year was its exposure to some specialty finance companies in the U.S. that were also sold off heavily. Mr. Whiting still has confidence in the business and management, and sees strong valuations after the selloff. Again, he believes it was a matter of being too early.
But that highlights a key element of the investment process. They take a longer term view and focus on quality. Because they see risk as the permanent loss of capital, they tend to put more emphasis on risk management over short term returns. This can result in periods where they look wrong in the short term, but given patience, their theses tend to play out over the longer term, generating solid risk adjusted returns.
I see this as a solid small cap offering for those with a longer term time horizon, and who are comfortable with a higher level of volatility. The past year was a tough one, with a level of downside capture that was nearly double the fund’s historical average. I will continue to watch the fund for signs of improvement.