In an office in Vancouver, a small Canadian mutual fund company with a difference carries on operations. There, Steadyhand operates a family of six funds. The company has devised a unique approach to the management of some of the best Canadian mutual funds — one which we think makes sense.
Most Canadian mutual fund companies start out with investment expertise, including a specific approach to investments. It may be value or growth investing, or some analytical approach to investment selection. The company then adds organizational capabilities and marketing in varying degrees.
Steadyhand, however, began as an organization and added investment expertise with the creation of six funds all at once. The difference between Steadyhand and many other fund families is that five of the six funds are independent of the company. Steadyhand has hired outside money-management with the expertise it deems appropriate for the five funds. Different portfolio management companies for the funds take different approaches to investing.
Principles produce top Canadian mutual funds performance
These fund managers, however, must conform to Steadyhand’s investment philosophy, which is based on four key principles. First, Steadyhand believes that the best way to beat the market over the long run is to create portfolios that look nothing like it. It will, therefore, hire managers who only run non-benchmark-oriented portfolios.
(This reminds us of one of the 28 Investment Principles of legendary investor Sir John Templeton. Principle number four states that, “If you buy the same securities as other people, you will have the same results as other people.”)
Second, Steadyhand believes that by focusing on a limited number of stocks — say, 20 to 30 — portfolio managers develop a better understanding of the businesses they invest in and carry a higher level of conviction in their best ideas. The firm, then, will only hire managers that invest in concentrated portfolios of stocks.
Third, Steadyhand believes managers shouldn’t be constrained by rules that dictate where a manager can and can’t invest. It prefers its managers to seek opportunity wherever it can be found.
Finally, Steadyhand views frequent trading as costly. It hires managers that invest with conviction and typically hold stocks for several years.
Top quartile of Best Canadian Equity Funds
The company’s Canadian equity fund, then, is managed by CGOV Asset Management, a firm that believes superior equity portfolios are built by investing in a focused number of companies that have great management and operate in diverse industry sectors. Under its management, Steadyhand Equity Fund (Fund code: SIF130 (NL)), which was started in 2007, has a compound annual growth rate of 13.5 per cent for the past five years, which ranks in the top quartile of Canadian equity funds. The fund is a buy.
Top quartile of Best Canadian Small-Cap Equity Funds
Another of the firm’s offerings we like is Steadyhand Small-Cap Equity Fund (Fund code: SIF150 (NL)). It’s managed by Wutherich & Company, a growth stock manager that focuses on established companies that generally have a demonstrated track record of revenue, cash flow or earnings per share growth, with strong managements and solid balance sheets. Started in 2007, the fund has a five-year annualized growth rate of 12.7 per cent, which ranks in the top quartile of the Canadian small/mid cap equity fund category. It’s a buy.
Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846