During the past twenty years the SC class of
the Trimark Canadian fund has yielded an
impressive average annual return of 10.09%. A
suitable benchmark for the fund is a mix of 70%
of the S&P/TSX Composite Total Return index
and 30% of the S&P 500 Total Return index (in
Canadian dollars). During the same period the
benchmark returned an average of 10.03%
annually, essentially on par with the fund. In the
shorter term, the fund returned 7.28% annually
over the past five years compared with the
benchmark's 1% average annual loss, which was
driven in part by the rise of the Canadian dollar.
The fund's respectable performance in a
difficult market was achieved under the direction
of Ian Hardacre, who has managed the fund since
1999. Taking a bottom-up approach, Mr.
Hardacre follows a value-oriented growth-at-areasonable-
price (GARP) style to select stocks for
the fund. Mr. Hardacre's ideal company has a
strong balance sheet, a clear competitive edge
within its industry, and a management team
whose strength and long-term commitment to
shareholders is unquestionable. Besides a strong
underlying business, Mr. Hardacre also looks for
a stock that is a bargain on the basis of its
discounted expected free cash flow.
Mr. Hardacre also points out that his
approach sometimes takes on a contrarian flavour,
and he emphasizes that he does not seek to match
the fund's performance to any particular index.
Indeed, the fund's three-year average correlation
to the S&P/TSX Composite index, is a low 0.87.
Such a low correlation is welcome support for the
manager's claim that the fund doesn't seek to track
The fund usually holds no more than fifty to
fifty-five stocks, ten to fifteen of which are
foreign. In addition, the fund normally holds cash
in the range of 5% to 8% of assets for flexibility.
Once a stock is purchased it remains in the fund
for about two years based on the fund's 50%
average turnover. This time scale is consistent
with Mr. Hardacre's stated long-term outloook.
He indicates that only about four to five major
changes are made to the portfolio each year. Mr.
Hardacre also points out that the fund's recent
turnover is, in fact, higher than he would like,
being driven up by the Canadian stock market's
strong cyclical component.
Taken in aggregate the fund's portfolio was
attractively valued compared to the S&P/TSX
Composite index at the end of the second quarter.
It's 4.5% earnings yield, which corresponds to a
price-to-earnings ratio of 22.2, was slightly lower
than the index's median earnings yield. On the
other hand, it sported a much more attractive
1.9% dividend yield and a comparatively low
price-to-book-value ratio of 1.8. All in all, the
portfolio's properties are consistent with the fund's
The fund held about 53 stocks at the end of
the quarter as well as a 6.9% cash position. Its
top three sectors were financials, consumer
stocks, and industrial stocks which together
represented over 60% of the portfolio. The fund's
top three stocks were TD Bank, The Bank of
Nova Scotia, and The Thomson Corporation.
During the first half of the year the fund was
moderately active, adding to its Vincor position
while selling Alliance-Atlantis and locking-in
profits in Telus. It also sold energy stocks and
reduced its energy holdings from 10% down to
5% of assets. Going forward Mr. Hardacre sees
few good opportunities in the Canadian market
that are not dependent on the price of energy, and
in particular of oil. As already noted, he is not a
great fan of cyclical stocks.
In such a climate Mr. Hardacre admits that
the removal of foreign investment restrictions on
RRSPs may lead him to slowly increase the
number of U.S. and international stocks in the
portfolio to take advantage of better opportunities
abroad. At the very least, he suggests, the move
will raise the bar for Canadian stocks.
Asked to name his favorite pick of the last
few years, Mr. Hardacre points to Telus, which
the fund has owned for many years despite a
negative mainstream outlook. He takes some
satisfaction in noting the stock's 'great'
performance and that, in this case at least, the
crowd was wrong. Marsh-Maclennan gets the
nod for the stock that has most disappointed. The
company looked good on paper but in fact fell
well short of those expectations. It did well until
the revelation of accounting irregularities and a
subsequent investigation. Although not the fund's
worst performer, it was the biggest
disappointment relative to expectations.
Going forward, Mr. Hardacre explains that
the performance of the Canadian stock market
will be tied to energy prices. In particular, the
response of the broader economy to rising prices
will be the key.
Charging a low 1.64% management expense
ratio (MER), the SC class of the Trimark
Canadian fund is available everywhere in Canada
through dealers and brokers for a $500 minimum
investment. It is also, frankly, unusual among
big-name funds. Indeed, its MER is the lowest of
all load-carrying, open-ended, and activelymanaged
Canadian growth funds. This situation
appears to be mostly a result of the Series SC
units of the fund paying only a small 0.3% trailer
fee to advisors compared, for example, with the
1% trailer paid by the Series A units of the fund,
which in turn charge a much higher 2.5% MER.
Readers should note that Series SC and Series A
units of the Trimark Canadian fund also differ in
that SC units are available only through a frontend
sales charge option. As usual, frugal
investors should purchase any load fund through a
dealer who will waive the load.
For a low fee the Trimark Canadian-SC fund
offers value-oriented and occasionally contrarian
stock-picking that clearly distinguishes itself from
the index. With an enviable track-record the fund
is worthy of consideration as a core holding by
moderately aggressive investors.
FF: Q2 2005