The Mawer Canadian Equity Fund
Long-time readers of the Canadian MoneySaver magazine know that,
over the long term, mutual fund fees matter. Frugal investors should,
therefore, make every attempt to minimise fees. This means looking
for funds that have a low Management Expense Ratio (MER). It also
generally means funds that don't charge a sales fee of any kind
(i.e. no-load funds). Some discount brokers will waive the sales fee
though. E-Trade Canada, which charges no load fees for mutual fund
transactions, is an example. So, if you can buy them without paying
the sales charge then load funds with a low MER are certainly worth a
For context, the average actively-managed Canadian equity fund charges an
MER of about 2.5%. However, to get a sense of really inexpensive funds, let's
set the bar slightly higher and look for funds that charge no more than
2%. This is not to say that funds that charge more are necessarily bad, but
simply that they are expensive in comparison. A quick survey of existing
Canadian equity funds reveals that those that meet this criterion are few in
Three examples of good no-load Canadian equity funds with
attractive MERs are the Philips, Hager & North Canadian Equity fund,
the Leith Wheeler Canadian Equity fund, and the Saxon Stock fund. The
fund families of which these funds are members generally feature lower
than average fees. In what follows, I take a closer look at the
Canadian Equity fund offered by Calgary-based Mawer Investment
Management, which also offers an entire family of low-fee funds.
Mawer Canadian Equity Fund
Over ten years, this fund has outperformed the average Canadian large-cap
fund by an average of about 2% annually. Over the last three years, as the
tech bubble burst, the fund managed to hang on to most of its gains. In part
this is because the fund started to sell its Nortel stake in 2000 well before
the stock peaked. More recently, the generalised slide which drove down the
markets through this fall has hurt the fund to a small extent. In 2002 it is
down 2.2% to the end of November, which is nevertheless a strong showing
compared to the 15% loss of the S&P/TSX 60.
Managed by Jim Hall and Martin Ferguson of Mawer Investment Management, the
fund invests in common shares of Canadian companies with more than $500 million
in market capitalisation. These managers select stocks using a growth at a
reasonable price (GARP) style with a value bias. The focus is on selecting
money-making companies that are undervalued, and that are in the right part of
their business cycle. Once purchased, stocks are generally held for the long
term. (Recently this has meant an average of four to six years for this fund.)
The managers also emphasise broad diversification to reduce risk. For
example, as a general rule, the fund will restrict an individual stock's
weighting in the portfolio to be no more than 5%. A 20% guideline is in place
for individual economic sectors.
At the end of November the fund's top three sectors were financial services,
materials, and energy. Thirty stocks were held in the portfolio, of which the
top-three were Royal Bank (RY), Bank of Nova Scotia (BNS), and Petro-Canada
(PCA). The fund also held a 1.8% cash position. Recent big moves include the
elimination of a position in Bombardier (BBD.B) and a 50% reduction of the
Enbridge position (ENB). At the same time, existing positions in AGF
Management Ltd. (AGF.B) and Ensign Resource Service Group (ESI) were
Recently, the fund's managers haven't found any good new selections in the
Canadian stock universe beyond the current holdings. Cash inflows have
therefore been used to add small amounts to existing positions throughout the
year. However, according to the managers, this has not led to any significant
increase in the fund's turnover. The fund's historically low turnover reflects
the managers' commitment to choosing stocks that can be held for the long term.
One issue of note concerns the minimum investment level. The fund can be
purchased through dealers or brokers with a $5000 minimum initial investment.
However, to purchase it directly from Mawer that minimum rises to $25,000 for
residents of Alberta and Saskatchewan, and to $100,000 for those in British
Columbia, Manitoba, and Ontario. Residents of other provinces have no option
but to go through a dealer.
The Mawer Canadian Equity fund offers a record of solid long-term performance
and a conservative approach focussed on undervalued money-making companies.
With a low MER of 1.5% and no sales charge, it is a good candidate for those
investors seeking conservative growth.
Remember that any money paid in fees is money that isn't working for you.
Over the long term this recurring cost will have a significant impact on your
gains. Therefore, whether investing in actively-managed funds such as the one
discussed here or letting an index guide your returns, it is in the best
interest of the frugal investor to keep such costs to a minimum.
Carl Wolfe, Ph.D.