How’s Kim doing?

During the years Kim Shannon ran the CI Canadian Investment Fund (previously known as Spectrum Canadian Investment Fund) she became one of the star managers in the country. Her funds consistently outperformed and money from investors poured in.

Then in 2006 she stunned Bay Street by giving CI 60 days notice and entering into a deal to run money for the Brandes organization, a California-based company that was having a tough time getting established in the Canadian market.

Ms. Shannon’s company, Sionna Investment Managers Inc., agreed to launch a new line of funds with Brandes which would carry the name of both firms. These were made available to the public in December 2006 so we now have three years of history by which to judge them. How are they performing? Let’s take a close look at each.

Brandes Sionna Canadian Equity Fund. This one got off to a slow start with a gain of only 1.4 per cent in 2007. Shannon and her team then ran into the buzz saw of the market meltdown, which spared no one. However, the fund managed to do better than the overall market, losing 30 per cent in the year to Feb. 28/09. Like most other funds, it has bounced back since then, recording a gain of 29.9 per cent in the year to Feb. 28, however that was well off the category average of 38.8 per cent.

The fund invests mainly in large-cap stocks such as Canadian Natural Resources, Bank of Nova Scotia, Barrick Gold, Suncor Energy, etc. In short, the usual suspects that can be found on the top 10 lists of most Canadian stock funds. About half the portfolio is invested in energy and financials, reflecting the dominant position of those two sectors on the TSX.

There is nothing particularly exciting or different about this fund. Despite this, Canadians have over $630 million invested in it so someone obviously likes it. I rate it as $$ (average).

Brandes Sionna Canadian Small Cap Fund. In contrast to the Canadian Equity Fund, no one seems very interested in this one; it has less than $10 million invested in it. That makes it uneconomic and a candidate for the scrap heap at an early date, perhaps by merging it into the much larger Brandes Global Small Cap Equity Fund.

This one also started slowly, with losses in both 2007 and 2008. It was pounded when the market crashed, losing 35.5 per cent in the year to Feb. 28/09. It recovered with a 56.3 per cent gain in the 12 months to Feb. 28/10 but while that may look impressive it was well short of the category average. It’s hard to find any reason to put money here. Rating: $.

Brandes Sionna Diversified Income Fund. The goal here is to provide steady cash flow plus capital gains. The cash flow amounts to a monthly distribution of 2c per unit, for a projected 12-month yield of 2.4 per cent based on the recent NAV of $7.97. That’s not terrible but if income is the number one priority there are many other funds that do better.

As for total return, the fund is coming off a good year with an advance of 39.1 per cent to Feb. 28, considerably above average for the Canadian Equity Balanced category. But the two and three year numbers are sub-par, reflecting losses in 2007 and 2008. The portfolio is currently 71 per cent stocks, 29 per cent bonds and cash. The fund’s largest single holding is the currency-hedged version of the Brandes Corporate Focus Bond Fund which represents almost a quarter of the assets.

The equity side of the portfolio is weighted to financial stocks (about one-third of assets) with a few big income trusts in the mix such as Canadian Oil Sands. The overall result is mediocre and investors have only committed $50 million to this one. Rating: $$.

Ms. Shannon and her team are also involved with running the Brandes Sionna Canadian Balanced Fund. It was launched in 2002 as part of the original Brandes line-up and then renamed when Shannon came on board. The fund’s performance was uneven before she became involved and has remained that way. In the seven years from 2003 to 2009, the fund turned in a fourth-quartile performance four times. In the other three years, it was first quartile. The net result is a three-year average annual compound rate of return of -4.7 per cent, which represents the approximate period of Shannon’s involvement. The average for the category during that time was -1.3 per cent. Rating: $.

The bottom line: Fans of Kim Shannon must be very disappointed at the results her funds have produced since the move to Brandes. You have to wonder what would have happened had she continued her successful career with CI.

Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter that provides advice on fund selection and strategies. For subscription information, go here.

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Photo © Rob Friedman