Reproduction without permission is illegal
Volume 21, Number 5
WHAT’S NEW
♦ TFSA Limit Increased to $10K
– In his latest budget, Federal
Finance Minister Joe Oliver
announced that the yearly
contribution limit for Tax Free
Savings Accounts (TFSA) had
been increased to $10,000. This
increase takes effect immediately.
♦ ETFs Show Solid Q1 Gains –
Assets in Canadian listed ETF’s
continued to show impressive
growth, finishing the first quarter of
the year at $82.6 billion on net
creations of nearly $2.5 billion in
March. Year to date, BMO has far
and away been the sales leader,
attracting more than $2.1 billion in
new money, followed by Vanguard
in a distant second. With rumours
swirling that many financial
planning firms are looking to add
ETFs to their product shelves in the
next several months, expect these
numbers to continue to grow.
Correction
In our April edition, the article titled
“ U s i n g T- S e r i e s F u n d s t o
Reduce OAS Clawback”,
included an incorrect number for
the income level at which the OAS
will be completely clawed back by
the Canada Revenue Agency. The
correct income level should be
$116,103. I apologize for any
confusion or inconvenience this
may have caused.
1
May, 2015
Single Issue: $15
RECOMMENDED LIST
RECAP AND OUTLOOK
By Dave Paterson, CFA
Strong quarter despite heightened vola3lity
It was a good month for the funds on our Recommended List. Of the 38 funds on the
list, only three were in negative territory. The BMO Monthly Dividend Fund was
down 2.7%, but managed to outpace the S&P/TSX Preferred Share Index, which lost
nearly 5% as investors sold off fixed reset preferred shares in light of the lower
interest rate environment. The IA Clarington Canadian Conservative Equity Fund
lost 3.2% on weakness in its energy names, while the IA Clarington Canadian
Small Cap Fund was down 0.7%, also on energy weakness.
The foreign equity funds were all firmly higher, with many benefitting strongly from
the 8.5% drop in the value of the Canadian dollar relative to the U.S. greenback.
Barring a complete collapse in the price of oil, a dramatic cut in the Bank of Canada’s
key overnight rate, or a spike in U.S. yields, I don’t think we’ll see a repeat of this in
the near term.
As I look ahead, the investing environment remains a challenging one. The outlook
for fixed income remains muted, as the likelihood of a cut by the Bank of Canada in
the near term looks pretty remote. While I don’t expect rates to move higher anytime
soon, I don’t see any catalyst that will drive bonds higher. I continue to favour high
quality corporate bonds over governments, and with rates likely on hold, I’m
comfortable taking a bit more duration risk. As the economy picks up momentum, I’ll
be looking to reduce duration to help protect downside.
Within equities, I’m expecting more headwinds from Canadian equities. With oil
likely to remain under pressure for the near term, and the newly elected majority
NDP government in Alberta looking to review the current oil royalty system, the
outlook for the energy sector remains cloudy. Until the energy sector clears up, much
of the Canadian market is likely to struggle.
Continued on page 2...
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May 2015
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2
Recommended List - continued from page 1...
Europe, thanks to the ECB’s quantitative easing measures, is in
what appears to be a decent rally. For those with above average
risk tolerances, this may be an interesting trade for the next
little while. Those not comfortable taking that risk on their own
may want to gain exposure to the region through a high quality
global or international equity fund.
In the U.S., equities remain fully valued. While some
momentum may ultimately push prices higher, I’m expecting a
bit of a pause as investors digest the latest round of earnings
and economic numbers. Also, it is getting close to the time
when it is widely expected the FED will start ratcheting rates
higher, which may cause heightened volatility in the markets.
In this environment, I remain cautious and defensive. My
current investment outlook is:
Under-‐
weight
Cash
Bonds
Government
Corporate
High Yield
Global Bonds
Real Return Bonds
Equi9es
Canada
U.S.
Interna>onal
Emerging Markets
Neutral
X
X
X
X
X
X
Over-‐
weight
X
X
X
X
X
X
Recommended List Review
Funds Added to the List
PowerShares 1-5 Year Laddered Corporate Bond Fund
(AIM 53203 – Front End Units) – This fund invests in a
laddered portfolio of the most liquid short term corporate
bonds with maturities between one and five years. It is fairly
concentrated, holding only 25 bonds, all of which are
investment grade.
I like this fund for a couple of reasons, with the biggest being
that it offers a higher yield to maturity than either the TD
Short Term Bond or the PH&N Short Term Bond and
Mortgage Fund. At the end of April, its yield to maturity was
1.74%, compared with 1.1% for TD and 1.5% for PH&N. The
other thing I like about it is its low MER of 0.99%, compared
with 1.34% for TD and 1.16% for PH&N in the advisor series.
It pays a variable distribution, which has generated an
annualized yield of more than 3% for investors.
Barring a major dislocation in the credit markets, I would
expect this fund to hold up better than the other short term bond
funds on the list, making it a great addition to the
Recommended List.
Sentry Conservative Balanced Income (NCE 734 – Front End
Units, NCE 334 – DSC Units) –This conservatively managed
balanced fund is managed by the team of Michael Simpson, who
runs the equity sleeve, James Dutckiewicz, who is responsible for
the fixed income and setting the broader asset mix.
The equity portion is managed in a similar way to the highly
regarded Sentry Canadian Income Fund, although this fund’s
smaller size allows it to take more of an all cap approach. It has
companies that range from the very small to the very large.
Like other Sentry managed funds, it has been increasing its
exposure to the U.S. in recent quarters. At the end of March,
more than 25% of the fund was invested in the U.S.
The fixed income sleeve is very heavily weighted towards
corporate bonds, which make up more than three quarters of the
bond exposure. While the focus is on investment grade bonds,
about one quarter is invested in high yield bonds. On a whole,
the bond sleeve offers investors a higher yield than the FTSE/
TMX Bond Universe, with a lower duration. This positioning
will lessen the overall sensitivity to rising interest rates, while
providing better returns in a flat or falling yield environment.
They have a fair amount of flexibility with the asset mix, which
can range between 40% and 60% in stocks or bonds. At the end
of March, it held approximately 44% in equity, 44% in bonds,
and the balance in cash.
The fund’s performance has been very strong, particularly on a risk
adjusted basis. For the five years ending March 31, it generated an
annualized return of 9.7%, finishing well ahead of the pack. Most of
this outperformance can be attributed to the fund’s ability to hold its
value in falling markets. I certainly don’t expect that it will continue
to outperform as strongly as it has going forward, but I do expect it
to be well above average on a risk adjusted basis.
It is also a decent option for those looking for cash flow. It pays
a monthly distribution of $0.0375 per unit, which works out to
an annualized yield of 3.6 %.
The MER is 2.25%, which is above the average Canadian Neutral
Continued on page 3...
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May 2015
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Recommended List - continued from page 2...
Balanced Fund. The biggest drawback to the fund is that the
management team has only been at the helm for a little more than
two years. Still, when all things are considered, this looks to be a
decent balanced fund for those with a modest appetite for risk.
CI Cambridge Pure Canadian Equity Fund (CIG 11109 –
Front End Units, CIG 11159 – DSC Units) - This offering is
managed by the team of Stephen Groff and Greg Dean, using
the same investment process used on other Cambridge managed
funds. Their process is driven by a few key beliefs, including a
strong commitment to active management, a focus on absolute
return and downside protection, and they eat what they cook,
meaning each of the managers at Cambridge has a significant
portion of their own net worth invested in the funds they manage.
The portfolio is a combination of longer term, higher quality
holdings, and more opportunistic names where there is a near
term catalyst the managers believe can unlock shareholder
value, such as companies that are expected to benefit from a
cyclical recovery or an entrenched macro theme.
The investment process uses top down macro analysis as a
consideration when determining the sector, geographic, and
cap mixture of the funds. Security selection is done on a
fundamental, bottom up basis that looks for companies that
have a demonstrated history of strong capital allocation, a
sustainable competitive advantage, and a management team
that is strongly aligned with shareholders. Another interesting
aspect of the Cambridge process is they pay attention to the
correlation between holdings, which helps to provide better
diversification, and helps protect the downside.
This results is a high conviction portfolio, holding around 35
names. Their approach is active, with portfolio turnover
averaging well above 100%.
Performance has been excellent, gaining more than 31% for the
three years ending March 31, handily outpacing the index and
peer group. Their focus on capital preservation has really paid
off, with the fund having a negative down capture ratio, meaning
that in general, it gained when other small caps were down.
This is a great small and mid-cap focused fund, but don’t look for
it to continue to deliver double digit returns going forward.
Returns are expected to moderate to more normalized levels. Still,
I would expect that over a longer term period, it will be well
above average with volatility that is in line or lower than average.
Manulife Global Infrastructure Fund (MMF 4569 – Front
End Units, MMF 4469 – DSC Units) - Infrastructure makes a
fairly compelling investment because it offers long term stable
3
cash flows that are often adjusted to inflation, low risk of loss
of capital, and potentially attractive risk adjusted returns.
My pick in the space is the Manulife Global Infrastructure
Fund, managed by a team headed up by Craig Noble at
Brookfield Investment Management. Brookfield is one of the
recognized leaders in the infrastructure investing space.
The investment process is a mix of top down macro analysis
and bottom up company selection. The top down process is
used to identify potential investment themes and starts with a
detailed economic outlook that is used to provide an
understanding of which industries, countries and themes are
expected to do well. This helps the team narrow down the
companies on which they will do a more detailed fundamental
analysis that evaluates the quality of the balance sheet, free
cash flow generation, and valuation.
The portfolio tends to be well diversified, holding about 50
names from around the world. Given the nature of infrastructure
holdings, the portfolio is concentrated in utilities, energy, and
industrials, which combined make up nearly 85% of the fund.
Performance has been decent. For the three years ending March 31,
it gained an annualized 17.8%. In comparison, the more broadly
focused MSCI World Index gained more than 23%. Volatility has
been lower than both the index and many other global equity funds.
But what really makes this an attractive piece of a well-diversified
portfolio is the downside protection it offers. For the past three and
five years, it has participated in approximately two-thirds of the
upside of the global equity markets. However, it has been flat to
positive when markets are falling.
Given the management team behind it, this is a great option for
investors looking for infrastructure exposure in their portfolios.
Funds Removed From the List
TD Short Term Bond Fund (TDB 814 – Front End Units,
TDB 870 – DSC Units) – It’s not that there is necessarily
anything wrong with this fund, it is just that in the current rate
environment, combined with its 1.34% MER, I believe it will
be tough for it to generate any level of meaningful return. As a
replacement, I would suggest the PowerShares 1-5 Year
Laddered Bond Fund or the PH&N Short Term Bond &
Mortgage Fund, if you can access the low cost D or F series.
If you have to invest in the higher cost advisor series, you’re
better off with the PowerShares offering.
Mackenzie Cundill Canadian Balanced Fund (MFC 740 –
Front End Units, MFC 840 – DSC Units) – I have been
Continued on page 4...
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May 2015
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Recommended List - continued from page 3...
concerned about this fund for some time, mainly because of it’s
higher than average volatility. I do think that investors will see
strong returns over the long term, the level of volatility has
remained high for some time. While I expect it to deliver
returns that are in line with its peer group in up markets, it is
likely to be hit much harder in down markets. Given this,
combined with the availability of funds that I believe offer a
more compelling risk reward profile, I have decided to remove
the fund from the Recommended List.
AGF Monthly High Income Fund (AGF 766 – Front End
Units, AGF 689 – DSC Units) – I have had some concerns
about this fund in the past few quarters, and have decided to
remove it from my Recommended List immediately.
I believe it has struggled against other balanced funds for a
couple of reasons – first, it has been one of the more
aggressively positioned balanced funds and has been
underweight fixed income. That has hurt relative performance.
The other reason is its equity exposure is pretty concentrated in
energy and financials, which have struggled of late. Another
reason is they have about 75% of their USD exposure hedged,
which has dragged the CAD performance of their foreign
holdings while the dollar fell against the USD.
The bond sleeve is very focused on investment grade, with an
average credit quality of A. There is a small weight in BB and
B rated bonds, but it likely won’t make much of a difference.
Duration is slightly less than the FTSE/TMX Bond Universe,
and the yield is significantly higher at 4.7%. This positioning
will hold up a little better than the broader market, but will still
be hit if we see any upward pressure on yields.
The managers have recently pulled the equity weight in the
fund back a bit, but it’s still sitting at around 62%, with a third
in bonds and the rest in cash. A little less than half the equity
exposure is in foreign names. They have also repositioned their
energy names into higher quality companies that are expected
to withstand the lower oil price.
Considering all that, I believe there are more attractive
balanced funds available.
Funds of Note
Dynamic Advantage Bond Fund (DYN 258 – Front End
Units, DYN 688 – DSC Units) – In an environment where
interest rates are moving higher, I believe this is a bond fund
you will want to own.
4
The management places an extraordinary focus on preserving
capital, and actively manage the portfolio’s duration, yield
curve positioning, sector exposure and credit quality to help do
so. At the end of March, it held 39% in investment grade
corporate bonds, 37% in government bonds, 11% in real return
bonds and floating rate notes, 8% in high yield and the rest in
cash. This resulted in a yield to maturity of more than 4% and a
duration of 3 years, which is less than half the FTSE/TMX
Bond Universe Index. It is also about half of the duration of the
PH&N Total Return Bond Fund.
With it no longer being a sure thing that the next move from the
Bank of Canada will be a cut in rates, management believes this
conservative positioning is warranted. They intend to keep their
duration lower until there is a sustained move in ten year bond
yields, at which point they will look at increasing duration. They
are also using interest rate swaps to better manage risk.
This strategy is likely to result in underperformance in a flat or
falling rate environment, compared with the PH&N Total Return
Bond and the TD Canadian Core Plus Bond Fund. Given that
rates in Canada are extremely unlikely to rise significantly in the
near term, I am favouring the longer duration funds. However, as
we start to see an improvement in the economic numbers, the
possibility of a rate increase will become more likely. As that
happens, I will once again be favouring this offering.
PH&N Short Term Bond and Mortgage Fund (RBF 6250 –
Front End Units, RBF 4250 – Low Load Units) – This has
long been one of my favourite short term bond funds. It is run
by a strong management team, and it has delivered decent risk
adjusted returns over the long term. At the end of March, its
duration was 2.7 years, and it offered a 1.5% yield to maturity.
However, with an MER of 1.16% for the advisor sold units, the
cost is making the fund uncompetitive, particularly if there are
no further rate cuts coming from the Bank of Canada. If you
can buy the Series D or Series F units, this is still a great pick,
but if you are using the advisor class units, I believe the
PowerShares 1-5 Year Laddered Corporate Bond Fund is a
better choice, offering a higher yield and a lower cost.
Fidelity Canadian Balanced Fund (FID 282 – Front End
Units, FID 582 – DSC Units) – With a targeted asset mix of
50% equities, and 50% bonds, this is about as basic a balanced
fund as you will find, at least on the surface. But dig deeper and
the underlying managers are extremely active, keeping the
various asset classes well positioned.
For example, in the first quarter, the fund managed to
Continued on page 5...
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May 2015
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Recommended List - continued from page 4...
outperform its benchmark by a substantial margin, thanks to
some great stock picks in the healthcare and industrial sectors.
It was also helped by its underweight in energy and financials,
two dominant sectors which have struggled of late.
On the fixed income side, the target mix is 40% traditional
bonds, with 10% in high yield names. They have overweighted
corporate bonds, because of their higher yield potential
compared to governments. Even within their government
holdings, they had overweight exposure to provincial bonds,
again, because of the higher yield potential, without sacrificing
the overall credit quality.
Barring a surprise jump in bond yields, I would expect that this
fund will continue to deliver strong relative risk adjusted
returns. The biggest risk that I see is the high interest rate
sensitivity, given the relatively static 50% allocation to bonds.
Granted, the managers can be active within that sleeve, but
once rates do start to move higher, the fund is likely to face
some potentially strong headwinds. I will continue to monitor
the macro picture and will reevaluate as things develop.
BMO Monthly Dividend Fund (GGF 411 – Front End Units,
GGF 188 – DSC Units) – It was a tough start for the fund, losing
2.7% in the first quarter of the year. The struggles can be attributed
to its more than 60% weighting in preferred shares, which have
been under pressure ever since Bank of Canada Governor Stephen
Poloz cut the bank’s key lending rate. The problem stems from
fixed reset preferred shares, which are the most popular type of
preferred in Canada. Quite simply, fixed resets preferreds have a
dividend that is periodically reset based on the Bank of Canada’s
overnight lending rate. With the benchmark rate now lower than it
was, many are worried that new dividend rates on the fixed resets
will be significantly lower. Further compounding the troubles is
its overweight exposure to energy and financials, both of which
had a rough first quarter.
In this environment, my outlook for this fund is much less
favourable than it was last time around. I still believe this is a
solid fund, run by a solid management team, but don’t expect
much from it in the near to medium term.
IA Clarington Canadian Conservative Equity Fund (CCM
1300 – Front End Units, CCM 1400 – DSC Units) – Low
volatility and excellent downside protection have been why this
has been one of my favourite Canadian equity funds for several
years. However, the recent uptick volatility has me a bit
concerned. The big reason for this has been the fund’s
significant weighting in the energy sector. Because of this, it
has been uncharacteristically dragged lower in lockstep with
5
the market during the recent selloff. The management team
believes this was an anomaly and that we should see a return to
its previous risk reward profile. They also assure me that there
have been no changes to their disciplined stock selection
process and they will continue to focus on high quality,
dividend paying Canadian companies. I am inclined to believe
them, particularly in light of April’s strong showing, but I will
continue to monitor the fund very closely.
Sentry Small Mid Cap Income Fund (NCE 721 – Front End
Units, NCE 321 – DSC Units) – This fund just keeps
delivering, posting an impressive 7% gain in the first quarter,
handily outpacing both the benchmark and its peer group.
Much of the outperformance was attributed to the fund’s U.S.
equity holdings, which now make up about half the fund. I
would expect the U.S. holding to remain high for a couple
reasons. First, management believes that growth in the U.S.
will continue to outpace Canada for the next few months.
Another reason is the fund, now with more than $1.5 billion in
assets must look beyond Canada to find suitable investment
opportunities that meet the manager’s valuation criteria. The
size of the fund is definitely something I am monitoring to
make sure it does not have a negative effect on the risk reward
profile on the fund. So far, I have not noticed any meaningful
erosion, but will continue to watch the fund closely.
Fidelity Small Cap America Fund (FID 261 – Front End
Units, FID 561 – DSC Units) – Manager Steve MacMillan has
done a stellar job with this small cap offering since taking it over
in 2011. In the past three years, it has gained more than 33%,
outpacing both the index and peer group. This trend continued in
the first quarter, gaining an impressive 18.9%, thanks to a strong
showing from the fund’s consumer and technology names,
combined with the effect of a falling Canadian dollar.
The process used is a fundamental, bottom up approach that
looks for companies with strong management, sustainable
competitive advantages, and a high degree of earnings visibility
and the ability to grow earnings in the future. At the moment,
he seems to be finding these opportunities in the technology,
consumer discretionary and healthcare sectors.
I know I have said this a few times in the past, but the past
performance is not likely to be sustainable going forward. If
you have held this fund for a while, it may be a good idea to
rebalance and take some money off the table. Still, when I look
at the valuation of the underlying portfolio, I believe it is well
positioned to outpace the index and its peer group going
forward. It remains my top pick in the U.S. small cap space.
Continued on page 6...
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May 2015
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Recommended List - continued from page 5...
BMO Asian Growth & Income Fund (GGF 620 – Front End
Units, GGF 120 – DSC Units) – The outlook for Asia remains
very challenging, with the backdrop of slowing economic growth
across the region, combined with a rising U.S. dollar. Recently,
many governments, from India to China have taken steps to spur
growth, and seed up market reforms. Still, it will be a challenging
place to invest in the near term. In my view, this fund remains the
best way to play the region. By investing in a portfolio of high
quality, dividend paying stocks, as well as preferred shares and
convertible bonds, it provides an excellent way to gain exposure
to Asia, while still having some level of downside protection.
6
B U I L D I N G W E A L T H
M u t u a l F u n d s / E T F s U p d a t e
Editor and Publisher: David Paterson
Circulation Director: Kim Pape-Green
Customer Service: Katya Schmied, Terri Hooper
© 2015 by Gordon Pape Enterprises Ltd. and D.A. Paterson & Associates
Inc. All rights reserved. Reproduction in whole or in part without written
permission is prohibited. All recommendations are based on information
that is believed to be reliable. However, results are not guaranteed and the
publishers and distributors of Mutual Funds / ETFs Update assume no
liability whatsoever for any material losses that may occur. Readers are
advised to consult a professional financial advisor before making any
investment decisions. Contributors to the MFU and/or their companies or
members of their families may hold and trade positions in securities
mentioned in this newsletter. No compensation for recommending
particular securities or financial advisors is solicited or accepted.
CAMBRIDGE GLOBAL ASSET
MANAGEMENT – A DEEPER LOOK
By Dave Paterson, CFA
Delving deeper into the people and process behind this successful money manager
A few weeks ago, I had the opportunity to sit down with some
key members of the Cambridge management team including CoChief Investment Officer Brandon Snow, Chief Market Strategist
Bob Swanson, and Portfolio Manager Stephen Groff. During this
chat, I had an opportunity to get a better understanding of their
investment process and the people behind it.
Cambridge was launched in 2007, after Alan Radlo left Fidelity
and joined CI to launch the firm. Over the years it has grown
considerably, with more than $15 billion in assets under
management in a wide range of retail, high net worth, and
institutional mandates. It has also done a great job in attracting
investment talent, with two notable names being Bob Swanson
and Brandon Snow joining the team in 2011, not coincidentally
after leaving Fidelity. Today, the team has five portfolio
managers, five analysts and a trader.
Speaking with Brandon Snow, he emphasized that the firm’s
investment process is rooted in three basic concepts; active
management, absolute return focus with an emphasis on
downside protection, and an alignment of interests between the
managers and investors.
The active management he refers to is about building a
portfolio that is much different than the index. They don’t want
to give you the benchmark because let’s face it, you can buy the
index through an ETF a lot cheaper than the cost of a
Cambridge Fund. Instead, they rely on the wide range of
experience of their investment team to deliver focused,
concentrated portfolios of their best ideas.
Downside protection, or reducing the likelihood of a big loss, is
another key focus of their process. They have been fairly
successful in doing this. For example, according to
Morningstar, the downside capture ratio of the CI Cambridge
Canadian Equity Fund is 18% for the past three years, and
48% for the past five. This means that on average, the fund
participated in less than half the downside of the broader S&P/
TSX Composite Index. It is a similar story for the CI
Cambridge Pure Canadian Equity Fund, where the three
year downside capture was -38%, meaning that on average the
fund was actually positive in falling markets.
Finally, the managers want to make sure they are heavily
invested in their own funds, putting them on the same side of the
table as their investors. With “skin in the game”, they believe
they will work harder to deliver better risk adjusted returns.
The investment process used by the team looks to maximize
these factors. It uses top down macro analysis as a consideration
Continued on page 7...
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May 2015
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A Deeper Look - continued from page 6...
when determining the sector, geographic, and cap mixture of
the funds. This analysis is done by Bob Swanson, who before
joining the firm was best known for his time at Fidelity
Investments, where he ran the juggernaut Fidelity Canadian
Asset Allocation Fund. In addition to his role as Chief Market
Strategist, he also runs the CI Cambridge Canadian Asset
Allocation Fund, and the CI Cambridge High Income Fund.
In his macro analysis, he focuses on key economic trends and
factors including inflation, economic growth rates, and the
general mood for interest rates. He said that the purpose of this
analysis is to gain an understanding of the direction and trend
of the economy, rather than trying to forecast the absolute
levels. This allows him to form a view on the asset classes,
market sectors, and geographic regions that are best poised to
benefit. It also helps to provide a key input into the equity
team’s valuation models.
Security selection is done on a fundamental, bottom up basis
that looks for companies that have a demonstrated history of
strong capital allocation, a sustainable competitive advantage,
and a management team that is strongly aligned with
shareholders. Another interesting aspect of the Cambridge
process is they pay attention to the correlation between
holdings, which helps to provide better diversification, and
helps protect the downside.
All Cambridge portfolios are broken down into two elements;
core holdings and non-core holdings. Core holdings are what
you would expect them to be – well managed, strong
companies with a sustainable competitive advantage that will
serve as the core of the portfolio. The amount of a fund that is
invested in core holdings will be dependent on the mandate. For
example, lower risk funds like CI Cambridge Canadian
Dividend Fund may hold 80% to 90% in core names, CI
Cambridge Canadian Equity is likely to be in the 70% range,
while the more return focused funds like CI Cambridge Pure
Canadian Equity may only hold 50% in core holdings.
The non-core holdings tend to be more short term focused
where the team believes they hold an information edge.
Examples of these types of holdings would include companies
undergoing a cyclical recovery, or emerging profitable
businesses. Other examples may involve broader macro themes
such as healthcare or a recovery in energy.
7
This process results in reasonably high levels of portfolio
turnover as the position sizes are managed based on their
comfort level and conviction of each of the names. One thing
that Mr. Snow noted was that he expects turnover to be lower
going forward as his analysis into their trading process found
that they weren’t able to add significant value through the
additional trading. That is not to say they are changing their
approach. On the contrary, they will still use periods of
volatility and market dislocations as opportunities to improve
the portfolios, but instead, they will work to reduce the amount
of non-accretive trading.
Bottom Line
This approach to money management has worked well. Out of
the nine funds Cambridge manages that are rated by my
quantitative model, six have earned an “A” rating.
Returns
Fund
Rating 3 Mth 1 Yr 3 Yr 5 Yr
CI Cambridge Canadian
Growth Companies
A
3.5% 10.2%27.6%
CI Cambridge Pure
Canadian Equity
A
7.5% 13.4%31.4%
Cambridge High Income
Fund
A
5.3% 8.0% 9.4% 10.1%
CI Cambridge Canadian
Equity
A
4.2% 12.1%17.7% 13.0%
CI Cambridge Canadian
Dividend Fund
A
5.6% 20.8%12.9% 10.8%
Cambridge Canadian
Dividend Fund
A
5.6% 20.6%12.8% 10.7%
CI Cambridge Canadian
Asset Allocation
D
5.3% 10.8%10.6% 8.8%
CI Cambridge U.S.
Dividend Fund
F
7.3% 22.5%20.3% 15.6%
CI Cambridge American
Equity Fund
F
5.7% 18.2%20.0% 13.6%
CI Cambridge Global
Equity
F
9.1% 17.1%17.4% 11.4%
CI Cambridge Growth
Companies
TBD 8.3%
CI Cambridge Global
Dividend
TBD 7.3% 14.1%
MER
2.44
2.44
2.32
2.44
2.41
2.41
2.45
2.40
2.44
2.45
2.49
2.45
Source: Fundata, Paterson & Associates database
Of these funds, CI Cambridge Canadian Equity and CI
Cambridge Pure Canadian Equity are on my Recommended
List of Funds.
While I don’t expect that the absolute level of returns is likely
to be repeated, I do believe that these funds are highly likely to
continue to deliver above average risk adjusted returns, with
much better downside protection than their peers. I believe they
can make a great addition to most well diversified portfolios.
Mutual Funds / ETFs Update is published monthly by BuildingWealth.ca. All Rights Reserved
May 2015
Reproduction without permission is illegal
FUND
Bond Funds
FIRST RESULTS Q1 MENTION (to Mar 31) Return COMMENTS
NEW
7.9% (1 Yr.)
3.9% (1 Yr.)
3.9% (2 Yr.)
2.0% (2 Yr.)
6.5% (6 Yr.)
4.4% (15 Yr.)
Balanced Funds
Sentry ConservaQve Balanced Income
NEW
Manulife Monthly High Income
2.8% (3 mth)
Mawer Balanced Fund
13.1% (9 mth)
Mac Cundill Cdn Balanced
6.4% (4 Yr.)
AGF Monthly High Income
3.7% (4 Yr.)
Steadyhand Income
7.6% (4 Yr.)
Fidelity Canadian Balanced
7.1% (7 Yr.)
Income Funds
PH&N Monthly Income
5.5% (1 Yr.)
CI Signature High Income
9.9% (3 Yr.)
RBC Canadian Equity Income
12.3% (5 Yr.)
BMO Monthly Dividend
4.2% (10 Yr.)
Canadian Equity Funds
CI Cambridge Canadian Equity Class
12.1% (1 Yr.)
Fidelity Canadian Large Cap
16.5% (3 Yr.)
IA Clarington Cdn Conserva>ve Equity
4.6% (3 Yr.)
RBC North American Value
14.2% (3 Yr.)
Fidelity Dividend
13.3% (6 Yr.)
Leith Wheeler Canadian Equity 4.7% (8 Yr.)
Mawer Canadian Equity
10.3% (10 Yr.)
Canadian Small Cap Funds
CI Cambridge Pure Canadian Equity
NEW
IA Clarington Canadian Small Cap
-‐3.0% (6 mth)
Sentry Small Mid Cap Income
22.8% (2 Yr.)
Beutel Goodman Small Cap
9.9% (10 Yr.)
U.S. Equity Funds
Fidelity Small Cap America
37.4% (1 Yr.)
Mackenzie U.S. Large Cap Class
23.9% (1 Yr.)
Franklin U.S. Rising Dividends
21.1% (1 Yr.)
TD US Small Cap Equity
19.6% (4 Yr.)
Beutel Goodman American Equity
19.3% (6 Yr.)
Interna9onal/Global/North American Funds IA Clarington Global Equity Fund
Jan-‐15
7.9% (3 mth)
Mackenzie Ivy Foreign Equity
Jun-‐13
16.6% (1 Yr.)
Trimark Global Endeavour May-‐11
19.5% (3 Yr.)
Dynamic Power Global Growth
May-‐11
20.3% (3 Yr.)
Mawer Interna>onal Equity
Oct-‐09
13.2% (5 Yr.)
Chou Associates
Nov-‐02
8.6% (10Yr.)
Sector Funds
Manulife Global Infrastructure Fund
Apr-‐15
NEW
BMO Asian Growth & Income
Apr-‐13
13.1% (1 Yr.)
PowerShares 1-‐5 Yr Laddered Corp Bond
TD Canadian Core Plus Bond
Dynamic Advantage Bond
RBC Global Corporate Bond
TD Short Term Bond
PH&N Total Return Bond
PH&N Short Term Bond & Mortgage
8
Apr-‐15
Oct-‐13
Apr-‐13
Jan-‐13
Sep-‐12
Aug-‐08
May-‐00
Apr-‐15
Jan-‐15
Jun-‐14
Apr-‐11
Oct-‐10
Oct-‐10
Feb-‐08
Jun-‐13
Jan-‐12
Jan-‐10
Oct-‐03
Apr-‐14
Oct-‐11
Oct-‐11
Jun-‐11
Sep-‐08
Jun-‐06
Jan-‐05
Apr-‐15
Oct-‐14
Jan-‐13
Oct-‐03
Apr-‐14
Oct-‐13
Apr-‐13
Jan-‐11
Feb-‐09
Funds highlighted in Green are New Addi>ons to the List. NEW
3.4%
2.2%
2.3%
1.8%
4.1%
1.7%
NEW
2.8%
7.4%
0.5%
1.8%
3.9%
7.6%
2.1%
4.2%
1.3%
-‐2.7%
4.3%
3.7%
-‐3.2%
3.4%
2.9%
0.7%
4.0%
NEW
-‐0.7%
7.0%
6.1%
18.9%
10.4%
8.7%
13.3%
11.3%
7.9%
9.7%
13.5%
19.5%
13.9%
6.0%
NEW
10.5%
Replacing TD Short Term Bond. Oﬀers higher yield, lower cost
Slightly lower dura>on than PH&N Total Return. More defensive
Remains very defensively posi>oned. Expect it to lag near term
Remains a great compliment to a tradi>onal bond alloca>on
I believe there are bePer short term opQons available
In a ﬂat or falling rate environment, this is my top bond pick
Best accessed through Series D units for lower costs
ConservaQvely posiQoned bond sleeve. All cap equity focus
Defensively posi>oned, which dragged performance in Q1
Remains an excellent one >cket solu>on for investors
Too much potenQal volaQlity in equity sleeve. CauQon warranted
Energy weighed. Aggressively posiQoned. Missing the mark
Manager recently added high yield into the poraolio
50/50 asset mix remains acrac>ve near term
Poraolio is balanced. Should do well with ﬂat or falling rates
Managers used recent vola>lity to deploy cash. Now at 11%.
With overweight in energy, short term vola>lity expected
Environment for preferreds currently unfavourable. Hold for now
Fund's consumer names con>nued to beneﬁt from lower oil
Remains signiﬁcantly underweight energy, ﬁnancials & materials
Con>nued to struggle in Q1 due to energy and ﬁnancial holdings
Fund is overweight US equi>es amid economic worries in Canada
High cash balance, now 19%, likely to drag in rising market
Financials weighed on Q1 gains. Remains a solid long term pick. The best pick for DIY investors wan>ng low cost Cdn equity exposure
Concentrated, all cap mandate. Must invest at least 90% at home
Quality poraolio holds up well in vola>le market, but lagged in Q1
U.S. names and currency were main drivers of outperformance
Q1 strong on consumer holdings. S>ll concerned about risks in fund
Consumer & tech names boosted outperformance. Take proﬁts
Poraolio posi>oned for growth. Expect higher vola>lity
Underperformed in rising market due to conserva>ve posi>oning
Strong performance con>nues. Take proﬁts. Valua>ons extended
An excellent pick for DIY investors looking for ac>ve US equity fund
Quality focus tends to underperform in rising markets
High cash weigh>ng hurt in Q1. S>ll best pick for vola>le markets
Managers s>ll worried about valua>on. Cash remains at 13%
Fasten your seatbelts. Poten>al for a rough ride. Take proﬁts
My top interna>onal pick for DIY investors. Great management
High cash and overweight ﬁnancials dragged rela>ve gains in Q1
Managed by Brookﬁeld, a leader in infrastructure invesQng
Expec>ng weaker growth. Stock picking very important
Funds highlighted in Red are funds that are being removed from the list. Mutual Funds / ETFs Update is published monthly by BuildingWealth.ca. All Rights Reserved
May 2015