Two funds for global investors
Recently a broker friend and I spent about an hour on the phone screening through
the vast universe of global, international, and U.S. equity funds in search of
some we could recommend.
I have to report that it was a discouraging process. World markets have been
savaged over the past 12 months and the mutual funds that invest in them have
suffered as well. The strength of the Canadian dollar over that time has only
added to investors’ woes.
However, we both agreed that we appear to be at a turning point. As we spoke,
the loonie tumbled below US94c and oil dropped below US$. The Dow was rising
while the TSX was in the red yet again. All that action strengthened my view
that Canadians need to add more foreign exposure to their portfolios, and quickly.
The easiest way to do this is with mutual funds. Our search turned up two that
we agreed offered the right risk/return profile for the current situation: Mawer
World Investment Fund and Dynamic American Value Fund.
Taken together, these two funds make a good fit in any portfolio. The Mawer
fund does not invest in the U.S., so there is no overlap with the stocks in
the Dynamic fund. Here are profiles of each.
Dynamic American Value Fund
This fund has been a first-quartile performer every year since 2004 and held
its ground remarkably well while most U.S. funds were being battered. Over the
12 months to June 30, the average U.S. stock fund lost 18.1 per cent while this
one gave back only 1.7 per cent. That should provide some reassurance to nervous
Manager David Fingold took over in September 2005 so give him full credit for
the fund’s average annual compound rate of return of 9.7 per cent over the past
three years compared to an average loss of 3.1 per cent for the peer group.
Fingold looks for stocks that are trading below intrinsic value. In recent years,
value investing has been out of favour but he has been able to make it work
even in these difficult conditions.
The fund places relatively large bets on key equities so in order to succeed
the manager has to be a first-rate stock picker. Fingold appears to have this
ability. His largest single holding, Forest Oil Corp. of Denver, almost doubled
in value over the 12 months to the end of June before pulling back when oil
prices slumped. Other major holdings include Freeport-McMoRan Copper and Gold,
GrafTech International, Mosaic Corp., and Emerson Electric.
Fingold does not hesitate to build cash when markets are soft and right now
he’s sitting on about $90 million with more than 30 per cent of the fund’s assets
in cash and short-term securities. The fund employs currency hedging strategies,
with about 70 per cent of the assets exposed to the U.S. dollar as of June 30
and the rest to the loonie.
I recommend buying the front-end units at zero commission. The code is DYN041.
Mawer World Investment Fund
You may wonder why we picked a fund that lost almost 12 per cent in the year
to June 30. For starters, that result was much better than the average loss
of 17.2 per cent for the International Equity category. Over all longer time
frames, the performance of this fund remains well above the norm with a five-year
average annual compound rate of return of 11.8 per cent.
The fund uses a modified GARP approach to stock selection, which the company
describes as “growth at the right price”. This is a more conservative
take on the traditional GARP style in that Mawer’s managers seek out stocks
that are trading at a discount to intrinsic value.
Long-time lead manager Gerald Cooper-Key and his heir apparent David Ragan
use a bottom-up fundamentalist approach to identify international companies
that are trading at a discount to their North American counterparts. The fund
is well diversified geographically with 35 per cent of the assets in continental
Europe, 34 per cent in the U.K., 20 per cent in emerging markets, and 14 per
cent in Asia. There is a cash position of 7 per cent.
In terms of sectors, financials and industrials each make up 20 per cent of
the mix while energy and materials are each at 14 per cent. Top holdings include
Netherlands-based Royal Boskalis Westminster, an international dredging company,
Canon, Royal Bank of Scotland, Siemens, and Samsung.
Although Mawer officially classifies this fund as “higher risk”,
its historic volatility profile is about average for the category and it has
held up better than most of peers over time. It has been a first-quartile performer
in six of the past eight years, which shows good consistency. The MER is a very
reasonable 1.43 per cent and the fund is sold on a no-load basis. Minimum initial
investment is $5,000.
Ask your financial advisor if either of these funds is right for your needs.