First Trust changes course

Most investors have never heard of First Trust Portfolios Canada even though it has been in this country since 1996. The Toronto operation is the Canadian branch of a U.S. company that is based in the Chicago area.

Originally, First Trust focused on creating sector-specific closed-end funds (e.g. pharmaceutical stocks) with a set termination date. But interest in those products fizzled out and recently the company has moved in a different direction. It has set up several mutual fund trusts and corporations with portfolios that emulate the top picks of various brokerage firms such as RBC Dominion Securities, TD, Raymond James, and Scotia McLeod. So far, the results are mixed but one of their funds caught me by surprise when I ran a filter for the top performers over the past 12 months. Here are the details.

The fund goes by the awkward name of First Trust Raymond James Canadian Focus Picks Portfolio. As you might guess, the fund focuses on the stock selections of brokerage firm Raymond James and the results so far have been very impressive.

The fund is coming off an amazing year with a gain of almost 120 per cent over the 12 months to April 30 (A units). That was the best performance for the period by any domestic mutual fund with a minimum investment of less than $100,000 (for this fund, it is $1,500).

What’s unusual about this fund is that Raymond James’s Focus Picks are all small and mid-cap stocks and the fund makes big bets on each of them. For example, as of May 13 the number one holding was Fortress Paper, which accounted for 7.22 per cent of the total assets. Fortress is a little-known currency and wallpaper printer (how’s that for a strange mix?) that operates two plants in Europe . The company just announced a deal to buy an aging dissolving pulp mill in Thurso, Quebec where it plans to invest $150 million to turn it into a state-of-the-art facility complete with a biomass co-generation plant. The stock, which was trading below $10 at the start of this year, has been on a tear and hit al all-time high of $26 on April 13 before pulling back to the $23 range. The fund has benefitted accordingly. The portfolio also made big gains on Canfor Pulp Income Fund, Methanex Corp., H&R REIT, and Rocky Mountain Dealerships.

This is not a fund that will be to all tastes. The portfolio is a mix of REITs, small income trusts, resource stocks, and a couple of industrials, like Toromont Industries. There are no big banks, insurance companies, or energy giants. But, so far at least, it’s been a very profitable grab bag for investors – those few who have discovered it, that is. The fund only has about $17 million in assets under management. That actually works to the advantage of the people who have invested here because stocks like Fortress Paper have a small market cap and are relatively thinly traded (three-month average daily volume is 55,000 shares). A large fund would not be able to take a 7.2 per cent position in the company.

This fund would be well suited to an aggressively-managed TFSA although it may be too volatile for an RRSP or RRIF, which should be run more conservatively. Ask your advisor if it is appropriate for your needs.

The front-end load A units have a maximum commission of 3 per cent and an MER of 2.68 per cent. The code is FTC551. The F units for fee-based accounts have a 1.91 per cent MER. The code is FTC555.

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