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Newsletter Archive
Q1/6 Focus on ETFs
Q4/5 LW Canadian Equity
Q4/5 Saxon High Income
Q3/5 Saxon Small Cap
Q3/5 BG Income
Q2/5 Trimark Canadian
Q2/5 MB Fixed Income
Q1/5 BG Canadian Intrinsic
Q1/5 MB American Equity
Q1/5 Mawer N.C. Closure
Q4/4 Mawer Cdn Equity
Q4/4 Mawer Balanced RSP
Q3/4 Sceptre Equity Growth
Q3/4 Saxon World Growth
Q2/4 BG Small Cap
Q2/4 Mawer U.S. Equity
Q1/4 PH&N Cdn Growth
Q1/4 Leith Wheeler US Eq
Q4/3 iShares S&P500
Q4/3 BG Canadian Equity
Q3/3 North Growth US Eq
Q3/3 HSBC Mortgage
Q2/3 MB Cdn Eq Growth
Q2/3 Batterymarch US Eq
Q1/3 Saxon Stock
Q1/3 BG Balanced
Q4/2 Mawer New Canada
Q4/2 Perigee T-Plus
Q3/2 PH&N Dividend Inc
Q3/2 PH&N Bond
Q2/2 Leith Wheeler Cdn Eq
Q2/2 Perigee Diversifund
Q1/2 PH&N Cdn Equity
Q1/2 Mawer U.S. Equity







The Mawer Family of Funds

Mawer Investment Management is an independent privately-owned asset management company with about $2.4 billion under management. Its principal business is the management of pension funds and private client accounts. But the firm also offers a family of eight mutual funds available to retail investors.

At Mawer equities are generally managed following a growth-at-a-reasonable-price (GARP) style with a bit of a value bias. For very large taxable accounts Mawer offers a tax-effective overlay strategy (TEAM) that seeks to lock in capital losses, when available, to offset gains. While this overlay isn't applied directly in the management of the Mawer mutual funds, their managers do have access to the TEAM group's research and counsel. Of course Mawer's longterm outlook also helps to minimize taxable gains by keeping portfolio turnover low. As a result many of Mawer's funds have seen strong after-tax returns.

Mawer funds can be purchased through dealers or brokers with a $5000 minimum initial investment. However, when purchasing directly from Mawer the 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 or broker.

It should be noted that at press time Mawer announced that, due to strong recent inflows of cash, the Mawer New Canada Fund was closed to new investors.

Mawer Balanced RSP

During the past fifteen years the Mawer Canadian Balanced RSP fund has posted an average annual return of 9.1%, outperforming a blended index of 60% S&P/TSX Composite and 40% SCM Universe index which returned 8.7%. The typical Canadian balanced fund in contrast yielded only 7.8% annually on average. In 2004 the fund lagged the index slightly after fees, but outclassed most of its peers by almost 3 percentage points.

2004 saw a significant change in the fund's investment strategy. Previously the fund invested directly in bonds, stocks, and other Mawer specialty funds. The fund's portfolio was constructed using other Mawer funds as models. So, for example, the Canadian equity component of the Balanced RSP fund would closely mirror the portfolio of the Canadian Equity fund. However, with regulatory changes that took effect at the start of 2004 it was decided that the fund should simply become a fund of funds. The conversion was completed during the fourth quarter and the fund now invests only in O-class units of other funds in the Mawer family.

The fund is managed by Don Ferris who now focusses on the fund's mix of asset classes. Mr. Ferris' approach is to make only infrequent and incremental changes to the asset mix, which he presents in contrast with so-called market timing approaches. The fund's asset weights are established based on the Mawer team's estimation of probable future scenarios and their expected impact on different asset classes. Generally the asset mix is adjusted only two to three times a year.

The fund gains equity exposure through the Mawer Canadian Equity Fund, as well as the New Canada, U.S. Equity, and World Investment funds. Because equity management at Mawer generally follows a GARP style with a value bias, Balanced RSP fund investors can expect the same style to hold for the equity part of the fund's portfolio.

Fixed-income exposure is provided by the Mawer Canadian Bond fund which invests in investment-grade debt securities selected on the basis of bottom-up security analysis and high relative yield. The duration of the Canadian Bond fund's portfolio is kept in a range of plus or minus one year around the duration of the SCM Universe index. Currently the Canadian Bond fund's duration is about 0.3 years shorter than the index's, which means that it is a bit less sensitive to interest rate fluctuations. The Canadian Bond fund is also slightly overweight in corporate and federal government issues.

At the end of 2004 the fund held 64.3% of its assets in equities and 29.9% in bonds, while 5.7% was held in cash. Foreign equities represented 30% of the portfolio. On the Canadian stock side 29.7% of the fund was held in the large-cap Canadian Equity fund and 4.5% in the small-cap New Canada fund. The fund had an active fourth quarter because of the completion of the transition from individual stocks and bonds to the fund of funds format. The resulting transactions triggered significant capital gains for the fund, which distributed $2.77 per unit on December 20th. Compared to its historical annual distributions of about $0.30 this is certainly high. It is reasonable to expect that the fund's 2004 turnover will be high compared to its 37% historical average because of the change of format.

Looking ahead Mr. Ferris considers the equity markets to be reasonably priced, particularly in Canada, and he expects them to yield high single digit returns in the coming year. On the other hand he considers bonds to be a bit overvalued and he expects less than coupon performance from this asset class. The fund is therefore taking a slightly defensive posture on the fixed income side.

It is noteworthy that the Balanced RSP fund is cheap compared to making separate investments in each of the funds it holds. A retail investor buying the same portfolio of Mawer funds would pay an MER of 1.27% instead of the Balanced fund's 1.01%, a difference of 26 basis points!

The Mawer Balanced RSP fund is suitable for investors who are seeking large-cap Canadian and foreign equities as well as bonds in one very attractive package. Its bargain-level MER combined with a solid track record make the fund a good choice for conservative frugal investors.

FF: Q4 2004

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