A strong Canadian equity fund hits a bump in the road

Any investor may occasionally see his strategy fail to keep up with others. An investor with a proven record of success, however, can expect that with time his strategy will once again prove its worth. Such is the case for the long-term perspective of one of the best Canadian equity funds.

NEI Northwest Canadian Equity Fund boasts one of the better long-term performance records in its category. These past 10 years, the fund’s compound annual growth rate is 6.7 per cent. That ranks in the top quartile of the Canadian focused equity category. But not all 10 of these years have been smooth ones, even though the fund has had the same manager for the entire period.

Portfolio manager Richard Fogler has built a reputation as a value manager over three decades. Under Mr. Fogler, Northwest Canadian Equity has delivered a compound annual return of 7.3 per cent since he began to manage the fund in December 1997.

Northwest Canadian has, nevertheless, had its periods of less-than-stellar performance. In 2007, while the S&P/TSX Composite Total Return Index registered a gain of 9.8 per cent, the fund lost 7.7 per cent of its value. That’s because it was significantly over weighted in financials and consumer-discretionary stocks that year — a year in which both these sectors underperformed and resources outperformed. Consequently, the fund performed in the bottom quartile of the category for the year.

In 2008, Northwest once again underperformed its peers. While it performed better than the S&P/TSX Composite Index, losing 31.8 per cent versus the 33-per cent loss of the Index, it was only a third-quartile performer in its category for the year.

The fund was a laggard in 2014, too. Though its performance was respectable enough — it gained 8.8 per cent for the year — it was still a third-quartile performance. Among the factors that caused it to underperform during the year were an overweight position in telecommunications and underweight positions in the industrials and consumer-staples sectors.

So far this year, Northwest has continued to deliver a third-quartile performance. But in viewing the fund’s performance for the 10 years ended Dec. 31, 2014, it’s important to note that the fund performed in the top half of its category in seven of these years. In five of the seven years, it was a top-quartile performer, and in two of the years it was a second-quartile performer.

This fund offers an excellent example of how any fund’s strategy can lead it to a period of underperformance. It also offers an example of how it can be one of the best Canadian equity funds when its strategy becomes more successful. In 2013, for example, it returned 27.3 per cent versus the S&P/TSX Index’s return of 13.0 per cent.

What’s more, the past 10-year history of Northwest Canadian Equity offers an example of the benefits of taking a long-term perspective when investing in equities. Those who have held the fund over this period have profited more than most of the focused Canadian equity funds. And, needless to say, investors who sold at the end of 2008 did less well.

Today, we think Northwest Canadian Equity offers a good investment in Canadian and foreign equities. We now rate the fund Very Conservative given its relatively low volatility and mostly high-quality portfolio. It stays primarily with large Canadian companies.

NEI Northwest Canadian Equity Fund is a buy if you want growth from a Very Conservative Canadian-focused equity fund and you can tolerate average investment risk.


Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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