The Decter is in

Michael Decter’s biography reads like something right out of Who’s Who. Former Deputy Minister of Health for Ontario. Former Cabinet Secretary in the Government of Manitoba. Founding former Chair of the Health Council of Canada. Former Chair of the Cancer Quality Council of Ontario. Current Chair of the Wait Times Data Certification Council of Ontario. Member of the Order of Canada since 2004.

Oh yes, I should also mention that in his spare time he writes books on investing (three so far) and manages a small mutual fund that is running up huge profits for those few investors who have discovered it.

It’s called the Redwood Global Small Cap Fund and it has given Mr. Decter an opportunity to put his investment theories into practice. The results have been interesting, to say the least.

The debut was anything but auspicious, in fact Mr. Decter couldn’t have picked a worse time to launch the fund — May 2008, just before the S&P/TSX Composite Index hit its all-time high and then went into free-fall along with all other world markets. As you might expect, the result was a rocky first year with the fund losing 54.3 per cent. But it regained that and more in 2009, shooting up an incredible 150 per cent. That made it the third-best performer among all conventional mutual funds last year.

Momentum has slowed in 2010 as the markets consolidated but the fund still managed to post a 7.2 per cent year-to-date gain to May 14 (all returns are for the A units). The net result is an average annualized gain of 17.3 per cent since inception.

Mr. Decter uses a value approach to pick small-cap stocks. Although this is theoretically a global fund, almost the entire portfolio (95 per cent at the start of the year) is in Canadian securities. Some of the fund’s recent big gainers are Grand Cache Coal, up 44 per cent in the first quarter, Consolidated Thompson, ahead by 20 per cent in the quarter, and North American Palladium, which gained 12 per cent during the period. As of the beginning of April, the fund was invested almost exclusively in resource stocks, based on Mr. Decter’s belief that an improving global economy will drive commodity prices higher. If he’s right, this newcomer will continue to churn out good results. But if he’s wrong, watch out!

There is one jarring note: the fund shows an exceptionally high MER of 18.11 per cent! That reflects the fact the manager collects a hefty performance bonus on any return in excess of the benchmark which in this case consists of 80 per cent S&P/TSX Small Cap Index and 20 per cent MSCI World Small Cap Index. When a fund increases in value by 150 per cent in a year, those performance fees can sure add up but with returns like that investors probably aren’t complaining.

There’s no doubt that the performance thus far is impressive but keep in mind that this is a very young fund. No reasonable investor should expect Mr. Decter to repeat is 2009 performance any time soon. But if he keep outperforming the peer group, money will come rolling in.

The minimum initial investment is $5,000. The codes are RAM203 for the A units and RAM233 for the F units.  Ask a financial advisor if this is an appropriate fund for your needs.

For information on a three-month trial subscription to Gordon Pape’s Mutual Funds/ETFs Update newsletter, click here.

Photo © Pali Rao