Leith Wheeler U.S. Equity
During 2003 the Leith Wheeler U.S.
Equity fund gained 25.5%, comfortably
outperforming the S&P500 Total Return
index (expressed in Canadian dollars) which
gained 20.5%. The fund outperformed during
the market turmoil of the last three years,
suffering an average annual loss of 1.4%
while the index lost 5.4%, and the average
U.S. equity fund lost an average of 6.4%
Vancouver-based Leith Wheeler
Investment Counsel has retained the services
of Sprucegrove Investment Management of
Toronto as sub-advisor and manager for the
fund since September of 2001. Sprucegrove
shares Leith Wheeler's value bias and uses a
bottom-up approach to select high-quality
American stocks that have fallen out of favour
with other investors. To the extent that the
firm looks for stocks that have been
overlooked by others or that have been
unjustly beaten down in price there is a
contrarian flavour to the fund's style.
Having added a stock to its portfolio, the
fund aims to hold it for the long term.
However, the fund's turnover has been high at
an average of 99% over the past five years.
This figure is at odds with the fund's
historically lower turnover levels. Excluding
the years 2000 and 2001, which saw turnovers
of over 100%, the fund's turnover has
averaged about 70%. While on the high side
for a fund with a long term view, such a
turnover suggests that the fund typically keeps
its stocks for a little less than two years.
We can get a sense of the fund's
quantitative properties by assuming that it
remained unchanged from December 31st,
2003 to March 31st, 2004. Under this
assumption the fund would have had a
comparatively low earnings yield of 1.3% at
the end of the first quarter. The main
contributor to this low figure is Visteon
Corporation, which had an earnings yield of
-100%. Excluding Visteon, the portfolio
would have had an earnings yield of 3%. The
good news is that Visteon, which the fund
purchased in the second half of 2001, posted
surprise positive earnings for the first time in
seven quarters on April 22nd and at press time
was trading around $11.40 with an earnings
yield of -81%.
On other fronts, the fund's portfolio
sported a 1.6% dividend yield at the end of
March, which is essentially on par with the
S&P 500 index. Its price-to-book ratio was a
bit on the high side at 2.2, but this was still
less than the index's 3.3. A positive note from
a value perspective was the portfolio's priceto-
sales ratio, which stood at a low 1.1.
Overall the portfolio seems a little expensive,
but isn't inconsistent with the fund's stated
At the end of the first quarter, the fund
held 50 stocks, up from 46 at the end of 2003.
It also held a 2% cash position. The top three
sectors represented in the portfolio were
consumer discretionary, financials, and
industrials, while the top three stocks were
Markel Corporation, Merck & Company Inc,
and the Class B shares of Warren Buffet's
Berkshire Hathaway. These three stocks
together made up 13% of the fund's assets.
During the second half of 2003, the fund was
moderately active, doubling its holdings of
Teradyne and Merck, and selling Nautica
Enterprises and National Semiconductor.
The Leith Wheeler U.S. Equity fund is
available for a $50,000 minimum investment
to investors in Ontario, Manitoba,
Saskatchewan, Alberta, and British Columbia.
Residents of British Columbia can purchase
units directly from Leith Wheeler. Those in
other provinces must make their purchases
through dealers or brokers. It is noteworthy
that Leith Wheeler pays no trailer fees or
commissions to outside dealers for the
distribution of its funds, which helps to keep
During the almost ten years since its
inception, the Leith Wheeler U.S. Equity fund
yielded average gains of 5.3% annually.
Although these are far from being the most
spectacular U.S. equity returns, the fund's near
rock-bottom MER of 1.25%, and its more
recent performance, makes it an interesting
choice for frugal investors. However, given its
higher than average volatility, it is best suited
to more aggressive long-term investors who
want exposure to the U.S. Market.
FF: Q1 2004