Northwest Canadian Equity Fund has performed reasonably well compared to its peers these past 10 years. But the fund’s EVA approach to investing has propelled it to the top of its category in more recent years.
NEI NORTHWEST CANADIAN EQUITY FUND seeks long-term capital appreciation through investment primarily in the stocks of Canadian companies. It may invest in both large and small-capitalization companies.
The fund’s portfolio sub-adviser, Kingwest & Company, invests in companies that fit investment criteria based on an economic valued added, or EVA, approach. This requires businesses to generate a high return on capital and possess a competitive advantage, superior management, strong financial prospects and a commitment to shareholders’ interests.
Kingwest’s EVA investment approach has worked out reasonably well for Northwest Canadian Equity Fund these past 10 years. Over that time, the fund’s compound annual growth rate is 6.7 per cent. This result ranks it in the second quartile of all funds in the Canadian focused equity category.
But the fund’s rankings have improved in recent years. In each of the past one-, three- and five-year periods, its performance ranks in the top quartile of the category.
That strength has been quite apparent over the last year. While the average fund in the category has gained 14.9 per cent in that time, Northwest Canadian has risen 19.5 per cent.
Fund is light on resource stocks
Kingwest has attributed the fund’s recent outperformance to the fact that it owns no materials stocks and it’s underweight energy stocks. Though the energy sector has gained momentum lately, materials stock have declined nearly 28 per cent so far this year.
Given the fund’s low weightings in the energy and materials sectors, it’s obvious that Kingwest has found few companies in these sectors that meet its EVA criteria. Instead, it has found most of its EVA candidates among financials, consumer-discretionary and telecommunications-services stocks.
The fund’s current sector breakdown is as follows: financials, 49.9 per cent; consumer discretionary, 17.8 per cent; telecommunications, 9.3 per cent; energy, 10.0 per cent; industrials, 6.6 per cent; health care, 3.3 per cent; technology, 1.8 per cent; and consumer staples, 1.2 per cent.
Much of the fund’ performance over the next while, then, will depend on how well financial stocks fare. They have done very well so far this year, gaining close to 18 per cent. We feel it will be hard for them to match this performance over a sustained period. So Northwest Canadian’s results may moderate over time.
But Kingwest has continued to find many companies at inexpensive valuations across many sectors. And it expects to deliver strong returns over the next two or three years, though results may be volatile as the global economy continues to slowly recover from the financial crisis of 2008.
Northwest Canadian Equity is a buy for investors seeking a conservative Canadian stock fund for long-term growth.