We’ve added a new fund to our Mutual Fund Planning Guide. Mawer Global Small Cap replaces CI Global Small Companies Fund.
The Money Reporter has added Mawer Global Small Cap Fund (Fund code: MAW150(NL)) to its list of The Top 40: Canada’s Best Mutual Funds. It replaces CI Global Small Companies Fund, which we have removed from the Guide and recommend you sell (see below).
Buy this global small cap fund that seeks wealth-creating companies with excellent management and that trade at a discount to their intrinsic values.
Mawer Global Small Cap’s investment objective is to provide above-average long-term, risk adjusted returns by investing primarily in securities of smaller companies around the world. For the fund’s investment purposes, smaller companies have a free-float market capitalization of US$3 billion (with a maximum of US$7 billion market capitalization) or less at the time of initial purchase.
How the fund diversifies
The amount invested in any one country will vary depending upon individual company by company opportunities in each area. The fund diversifies through currencies, industries and countries to increase safety, and to increase the growth and liquidity of the investments. Treasury bills or short-term investments, not exceeding three years to maturity, may also be used from time to time.
To achieve their objectives, Mawer’s funds seek out wealth-creating companies with excellent management teams bought at discounts to their intrinsic value. Wealth-creating companies are defined as those that earn a return on capital greater than their cost of capital over time by virtue of a sustainable competitive advantage. Intrinsic value is defined as the price an objective, well-informed person would pay for the company. This, according to Mawer, turns a great company into a great investment.
It’s an approach that has paid off handsomely for Mawer’s unit-holders. Of the firm’s seven equity funds, five have received a five-star rating from Morningstar, the financial research organization that rates funds and other securities.
Compound annual growth rate is 16.1%
Mawer Global Small Cap is one of the funds with a five-star rating. Started in 2007, the fund has a stellar track record. Over the past 10 years, its compound annual growth rate is 16.1 per cent. That ranks in the top six per cent of funds in the global small/mid cap equity category. Its returns over the past one-, three- and five-year periods are similarly impressive.
Looked at another way, the fund has performed in the top half of its category in eight of the 10 years ended Dec. 31, 2018. It was a top-quartile performer in seven years, a second-quartile performer in one year, and a third-quartile performer in two years.
Mawer’s MERs are generally low
The fund’s relatively low management expense ratio (MER) of 1.74 per cent has helped juice its returns. By contrast, CI Global Small Companies has an MER of 2.45 per cent. A higher MER, of course, eats into potential returns.
Mawer’s MERs are generally on the low side because it pays no trailer fees to the agents that sell its funds. For this reason, it’s not available for sale at RBC Direct Investing. But other discount brokers and investment advisors do offer Mawer funds for sale. A minimum initial purchase of $5,000 is required.
Mawer Global Small Cap Fund is a suitable buy for investors who want mutual funds with above-average growth and who can tolerate significant volatility and higher risk.
Sell CI Global Small Companies
If you own units of CI Global Small Companies Fund, we recommend you sell them and use the proceeds to buy Mawer Global Small Cap Fund, which is discussed above.
Though CI Global Small Companies has performed relatively strongly in the past, its poor performance over the past year or so has dragged down its longer term performance rankings. This past year, the fund has lost 15.6 per cent to rank in the bottom quartile of the global small/mid cap equity category.
Rankings over longer time frames are also relatively poor. Over the past three years, the fund’s 0.7-per-cent compound annual return ranks in the bottom quartile. Its five-year return of 4.0 per cent ranks in the third quartile. And its 10-year return of 8.0 per cent also ranks in the third quartile.
On a year-by-year basis for the 10 years ended Dec. 31, 2018, the fund performed in the top half of the category in just five years. It was a top-quartile performer in just 2013. It was a third-quartile performer in three years, and a bottom-quartile performer in two years. All in all, a relatively lacklustre performance.
Last year was a particularly poor one for the fund, as it lost 14.1 per cent. Stock selection was the most significant detractor to recent relative results. CI Global Small Companies is a sell.
This is an edited version of an article that was originally published for subscribers in the September 13, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •10/21/19 •