Mawer New Canada Fund
The past year was very good for the Mawer
New Canada fund, which gained a healthy 23.5%
despite falling markets. The fund performed much
better than the Nesbitt-Burns Canadian Small-Cap
(NBSC) index which fell 0.9% during the same
period. Over three years the Mawer New Canada
fund has gained an average of 19.9% annually,
while the NBSC index only added 3.2%.
Managed by Martin Ferguson since 1998, the
fund's $75 Million in assets are invested mainly in
shares of smaller Canadian companies with less
than $500 Million in market capitalization. The
fund follows a growth at a reasonable price
(GARP) style and has a value bias. The focus is on
selecting money-making companies that are
undervalued, and are in the right part of their
business cycle. For these small companies,
additional emphasis is placed on management's
ability and wealth creation track-record. Unless a
company's fundamentals change for the worse, the
fund aims to hold its stocks for several years.
Reflecting the added risk associated with
small-caps, the fund aims to hold between fifty and
sixty stocks, which is about twice the number in
Mawer's Canadian Equity fund. No single stock
may make up more than 5% of the portfolio, and
the representation of any given sector is limited to
20%. The fund's low volatility is a testament to the
effectiveness of Mawer's risk-management
The fund's portfolio is inexpensive relative to
the S&P/TSX Canadian Small Cap index with a
dividend yield of 1.6% (twice that of the index)
and a 6.5% earnings yield (over seven times that of
the index). Although, it's price-to-book ratio of 1.8
is lower than the index's median of 1.9, the fund's
price-to-book ratio is on the high side from a strict
value perspective. Nonetheless, the fund's
portfolio is well positioned.
At the end of the year the fund held fifty-one
stocks, of which all but three were small-cap
stocks. The fund also held 5% of its assets in cash.
The top three sectors were industrials (33%),
energy (20%), and consumer discretionary (13%).
These sector allocations have not drifted
significantly over the recent months. Nearly 10%
of the fund's assets were held in income trusts,
most of which were purchased during the first half
of 2002. The fund's top three holdings were BW
Technologies, Winpak, and CHC Helicopter.
Recent big moves included the sale of Slater Steel
and Wittke, as well as significant increases in the
fund's positions in Exco Technologies and the
Contrans Corporation Trust.
Small cap stocks have outperformed the
broader equity markets over the past two years and
Mr. Ferguson expects them to continue to
outperform in 2003. Mind you, the gains are
expected to be smaller, because small-cap stocks
are no longer as cheap as they were two years ago.
As with all Mawer funds, the New Canada
fund can be purchased through dealers or brokers
with a $5,000 minimum initial investment.
However, buying directly from Mawer requires a
minimum of $25,000 for residents of Alberta and
Saskatchewan, and $100,000 for those in British
Columbia, Manitoba, and Ontario. Residents of
other provinces have no option but to go through a
Over the long term, the Mawer New Canada
fund has demonstrated a consistent ability to
significantly outperform and is a bargain with a
low MER of 1.6%. Because of the greater risk
involved with small-cap stocks, this fund should
only make up a portion of a well-balanced
portfolio. Mawer New Canada should be
considered by more aggressive frugal investors.
FF: Q4 2002