It’s always news when a high-performance mutual fund re-opens its doors for new business. So I’m letting you know that the Northwest Specialty Equity Fund, which was capped in January 2005, started taking new money again on Feb. 24.
Investors can hardly be blamed if they rush to see their advisors, cheque book in hand. This fund has been a stellar performer. The five-year average annual compound rate of return to Jan. 31 was an amazing 30.4 per cent. That was more than four times better than the average for the Canadian Equity (Pure) category where this fund is mysteriously slotted, despite the fact it invests primarily in small-cap issues. However, even if it were in its proper category (Canadian Small Capitalization), it still would have more than doubled the average gain.
What is especially impressive is the way this fund galloped through the bear market. After a 5 per cent drop in 2000, manager Wayne Deans of Deans Knight Capital Management pulled off gains of 23.6 per cent in 2001 and 28.4 per cent in 2002, at a time when most equity funds were bleeding red ink. He has kept up the same frantic growth pace ever since. Who wouldn’t want some money here?p>
But hang on a second! At the same time as Northwest president Michael Butler announced that the fund is being reopened, he also revealed a management change that could have a profound effect on returns going forward. While Wayne Deans will continue to be associated with the fund, all the new money that comes in will be entrusted to Peter Harrison of Montrusco Bolton. Now, Harrison is a very competent manager but that doesn’t change the fact that the man who generated the great returns we’ve seen to date will not be the person who looks after your money.
Butler said that eventually Deans will be responsible for about one-third of the fund’s total assets. He described the move as offering “many benefits”, as follows: “First, Deans Knight can focus on managing at an asset level more appropriate for their small cap management style. Secondly, the addition of Montrusco means that two of the industry’s most successful small cap managers are managing our fund. And finally, this diversification of small-cap management styles will allow Northwest to accept new money into the fund.”
That’s all well and good but the reality is that Montrusco Bolton has a reputation for being more conservative in its approach than Deans Knight. That may eventually reduce the risk level but it remains to be seen whether future returns will be as eye-popping.
So buyer beware! This will not be the same fund going forward as it was in the past. It may all work out fine in the end but don’t base your decision on historic results. Incidentally, the fund will be capped again when assets reach $500 million.
This article originally appeared in Mutual Funds Update, a monthly newsletter that provides guidance on mutual fund selection and portfolio management. For more information go to http://www.buildingwealth.ca/partner.cfm?partner=50Plus