WHAT ARE WE LOOKING FOR?
Index beaters among smaller-company Canadian stock funds over the past decade. (Last week, we focused on larger-company Canadian stock funds.)
Smaller-capitalization funds have posted robust returns recently because their stocks tend to do well in the early stages of an economic recovery. Now, let's see which ones have been able to outdo the BMO Nesbitt Canadian Small Cap Index, a popular benchmark.
TODAY'S SEARCH
We screened funds in the Canadian small- or mid-cap and Canadian focused small- to mid-cap categories for the 10 years ended Feb. 28. We listed the top 30 performers, but they include those which did and didn't outpace the benchmark. We excluded U.S.-dollar, segregated, pooled and duplicate versions of the funds. As well, we only looked at those requiring an investment of $10,000 or under.
WHAT DID WE FIND?
Seventeen funds managed to outpace the small-cap index over the longer haul.
Front Street Growth, which is managed by Normand Lamarche of Front Street Capital Corp., rose to the top of the heap with an average annual return of 18.7 per cent. That's more than double the compounded annual gain of 7.7 per cent by BMO's index, and impressive since it has a hefty management expense ratio (MER) of 2.73 per cent. The track record has been helped by recent triple-digit returns, including a 131-per-cent gain for the year ended Feb. 28.
Mr. Lamarche takes a thematic approach, and looks for companies with strong growth potential in this go-anywhere fund. Formerly known as Front Street Small Cap Canadian fund until mid-2008, the fund has been heavily focused on resource stocks, and that has helped its return over the past year.
Mawer New Canada, which is run by Martin Ferguson of Mawer Investment Management Ltd., has posted an average annual gain of 14.8 per cent over a decade. In this case, a much lower MER of 1.42 per cent has undoubtedly helped his long-term record.
Mr. Ferguson said he looks for companies that "create wealth," or those with a high return on invested capital, and that trade at reasonable valuations. "So they can actually be value, growth or momentum companies," he said. "We are not trying to emulate any index."
His fund is fully invested at all times with cash at 5 per cent or less, and tends to hold companies for a long period of time so there is low turnover. Some companies that he has held in the fund for 10 years include names like Stantec Inc., Home Capital Group Inc. and Canadian Western Bank.
| Index beaters among 30 best performing Canadian small-cap funds over 10 years | |||||||
| (As of Feb. 28) | Latest | % returns (as of Feb. 28, 2010) | |||||
| Fund name | Asset Class (Assets ($-mil) | MER | 10-yr | 5-yr | 3-yr | 1-yr | |
| Front Street Growth-B | Cdn. Small or Mid Cap Equity | 134.85 | 2.73 | 18.7 | 10.5 | 2.3 | 131.1 |
| Mawer New Canada | Cdn. Small or Mid Cap Equity | 141.86 | 1.42 | 14.8 | 6.9 | 2.3 | 72.3 |
| Northwest Specialty Equity | Cdn. Small or Mid Cap Equity | 177.01 | 2.57 | 14.6 | 4.7 | -1.2 | 69.2 |
| Sceptre Equity Growth-A | Cdn. Small or Mid Cap Equity | 374.85 | 1.58 | 12.4 | 5.6 | -7.2 | 69.0 |
| Beutel Goodman Small Cap | Cdn. Small or Mid Cap Equity | 332.85 | 1.41 | 12.1 | 8.5 | 4.6 | 73.6 |
| Ethical Special Equity | Cdn. Small or Mid Cap Equity | 254.06 | 2.73 | 11.9 | 4.2 | -2.6 | 43.3 |
| IA Clarington Canadian Small Cap | Cdn. Small or Mid Cap Equity | 263.37 | 2.80 | 11.7 | 4.2 | -2.4 | 45.0 |
| Bissett Microcap-F | Cdn. Small or Mid Cap Equity | 46.18 | 2.42 | 11.0 | 3.4 | -4.3 | 79.0 |
| Renaissance Canadian Small-Cap | Cdn. Small or Mid Cap Equity | 207.42 | 2.51 | 10.8 | 8.4 | 1.0 | 69.0 |
| Trimark Canadian Small Companies | Cdn. Focused Small/Mid Cap Equity | 159.46 | 2.55 | 10.6 | 3.6 | -2.8 | 64.8 |
| Manulife Growth Opportunities Fund | Cdn. Small or Mid Cap Equity | 655.56 | 2.61 | 10.0 | 4.2 | -0.7 | 73.3 |
| National Bank Small Capitalization | Cdn. Focused Small/Mid Cap Equity | 585.68 | 2.35 | 9.9 | 6.2 | 2.5 | 81.0 |
| Mavrix Dividend & Income | Cdn. Focused Small/Mid Cap Equity | 79.75 | 3.25 | 9.0 | -3.7 | -8.4 | 58.6 |
| Altamira Quebec Growth | Cdn. Small or Mid Cap Equity | 16.25 | 2.35 | 8.8 | 5.3 | 0.1 | 59.0 |
| Bissett Small Cap-F | Cdn. Small or Mid Cap Equity | 45.93 | 1.73 | 8.8 | 2.6 | -3.6 | 92.4 |
| Chou RRSP | Cdn. Focused Small/Mid Cap Equity | 123.77 | 1.74 | 8.3 | -2.1 | -10.8 | 54.0 |
| Mackenzie Saxon Small Cap-SI | Cdn. Small or Mid Cap Equity | 137.57 | 2.05 | 8.0 | 1.4 | -6.0 | 96.0 |
| Northwest Specialty Growth | Cdn. Small or Mid Cap Equity | 92.04 | 2.33 | 6.5 | 6.1 | 2.2 | 58.2 |
| BMO GDN Enterprise Mutual | Cdn. Small or Mid Cap Equity | 136.89 | 2.75 | 6.4 | 5.6 | 1.2 | 71.6 |
| BMO Special Equity | Cdn. Small or Mid Cap Equity | 320.85 | 2.38 | 6.2 | 7.1 | -0.9 | 65.2 |
| Goodwood Capital Fund | Cdn. Focused Small/Mid Cap Equity | 38.41 | 2.77 | 5.9 | 0.9 | -9.5 | 69.4 |
| Renaissance Millennium Next Gen | Cdn. Small or Mid Cap Equity | 74.46 | 2.57 | 5.7 | 2.5 | -5.3 | 24.5 |
| Dynamic Small Business | Cdn. Small or Mid Cap Equity | 158.20 | 2.69 | 5.7 | 13.4 | 10.0 | 54.6 |
| Standard Life Cdn Small Cap-A | Cdn. Small or Mid Cap Equity | 156.60 | 2.54 | 5.6 | 2.7 | -5.0 | 58.1 |
| Dynamic Power Small Cap | Cdn. Focused Small/Mid Cap Equity | 265.23 | 2.72 | 5.4 | 5.0 | -1.9 | 66.0 |
| CI Alpine Growth Equity | Cdn. Small or Mid Cap Equity | 59.89 | 2.31 | 4.2 | 4.5 | -0.6 | 76.6 |
| CI Can-Am Small Cap Corporate Class | Cdn. Small or Mid Cap Equity | 106.16 | 2.34 | 3.8 | 3.6 | -0.7 | 37.9 |
| HSBC Small Cap Growth-I | Cdn. Small or Mid Cap Equity | 45.09 | 2.31 | 3.7 | 3.6 | -2.9 | 72.0 |
| TD Cdn Small-Cap Equity | Cdn. Small or Mid Cap Equity | 448.48 | 2.42 | 3.7 | 3.4 | 0.2 | 72.8 |
| CIBC Canadian Small-Cap | Cdn. Small or Mid Cap Equity | 347.64 | 2.52 | 3.2 | 5.6 | -1.1 | 69.3 |
| CI Canadian Small/Mid Cap | Cdn. Small or Mid Cap Equity | 515.74 | 2.31 | 2.8 | 1.2 | -3.1 | 51.5 |
| AGF Canadian Growth Equity | Cdn. Small or Mid Cap Equity | 698.29 | 2.92 | 2.3 | 2.5 | -6.6 | 53.0 |
| Desjardins Canadian Small Cap Equ | Cdn. Small or Mid Cap Equity | 242.80 | 2.19 | 1.9 | 0.6 | -8.8 | 64.4 |
| BMO Nesbitt Burns Cdn Small Cap Index | 7.7 | 5.0 | -2.1 | 87.6 | |||
| Source: Globe Investor |
© 2007 The Globe and Mail. All rights reserved.
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