Go against the trend with Mawer International

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

You may be disappointed if you plunge into the U.S. markets now expecting near-term gains similar to the strong double-digit returns that U.S. equities have delivered so far this year. You may have to look further afield for such gains now.

At a time when investors are flocking to U.S. stocks in an effort to chase performance, contrarian global investors may do well to add exposure to non-North American equities right now. With this in mind, one less well-known fund in the Europe, Australasia and Far East category stands our for remarkable consistency over the decades.

MAWER INTERNATIONAL EQUITY FUND, operated by the small but capable Mawer Investment Management Ltd. of Calgary, has been a leader in non-North American investing since 1987. The fund mostly invests in equities in Europe, Asia, Latin America and Australia. It diversifies through currencies, industries and countries to increase the safety of its capital, and to increase the growth and liquidity of its investments.

In search of wealth-creating companies

To achieve its investment objective of long-term risk-adjusted rates of return, Mawer International Equity systematically creates a broadly diversified portfolio of wealth-creating companies with excellent management teams bought at discounts to their intrinsic value. When the people at Mawer refer to “wealth-creating” companies, they mean those that deliver a return of capital greater than their cost of capital over time.

In their search for wealth-creating companies, the fund’s portfolio advisers use a highly disciplined research-driven, bottom-up investment process. And once they identify a suitable stock, they like to hold for the long term to allow for investor recognition or corporate growth, and to minimize transaction costs.

The Mawer investment approach has worked out relatively well over the decades. For example, these past 20 years, Mawer International has a compound annual growth rate of 7.7 per cent, which ranks first among seven funds in the international equity category. And again, over the past 10 years, the fund’s 7.5 per cent annualized return ranks third among 91 funds.

What’s more, the fund has delivered above-average results with remarkable consistency. These past 10 years, for instance, it performed in the top half of the category in nine years.

Volatility, meanwhile, has been lower than average compared to its peer group. Our volatility ratings for funds in the international equity category range from five to 10 out of a maximum volatility rating of 10. Mawer International’s rating of six is below the median rating of seven for the category.

The fund’s performance has certainly benefited from stable portfolio management over the years. Gerald Cooper-Key managed the fund from its inception in 1987 until early 2010. At that time, David Ragan, a co-manager of the fund since 2007, and James Hall, long-time manager of the highly successful Mawer Canadian Equity Fund, assumed the portfolio management duties.

Performance has continued to be top-rate under the two managers. Over the past three years, Mawer International has delivered 12.2 per cent annually, to rank seventh among 227 funds.

As you would expect with an international equity fund, Messrs. Hall and Ragan have kept a considerable weighting of European equities in the portfolio. The fund’s top country weightings are as follows: the U.K., 32 per cent; Sweden, eight per cent; Germany, seven per cent; Switzerland, six per cent; Japan; five per cent; the Netherlands, five per cent; Australia, four per cent; Hong Kong, four per cent; Singapore, three per cent; and Belgium, three per cent.

We feel that European equities have more upside potential than relatively more expensive U.S. equities over the next year or so. And that’s why we feel Mawer International Equity holds particular appeal right now.

The fund has about two-thirds of its assets invested in Europe. But otherwise it’s well diversified geographically, with assets invested in Africa, Asia, the Middle East, Latin America and the South Pacific.

Portfolio is well diversified by sector

The portfolio is also well diversified by industry sectors, which break down as follows: industrials, 20 per cent; financials, 19 per cent; health care, 15 per cent; consumer staples, nine per cent; materials, nine per cent; technology, eight per cent; cash, seven per cent; consumer discretionary, seven per cent; energy, three per cent; and telecommunications, three per cent.

And the portfolio is well diversified by individual securities too. It contains about 61 securities, with no one security accounting for more than four per cent of total assets.

No discussion of Mawer International Equity would be complete without recognition of it low management expense ratio, or MER. At 1.53 per cent, its MER is well below the category average of 2.38 per cent. That gives the fund a substantial advantage over its peers when it comes to generating future returns.

The fund is a core holding for investors seeking diversification outside North America.

Recommendation:
Mawer International Equity is a buy for investors seeking a conservative, diversified, non-North American equity fund.

 

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