It was a tough year for Cambridge Pure Canadian Equity Fund, which dropped just a shade below breakeven for the year, down -0.4%. It
is particularly disappointing given the significant cash balance, which was
roughly 20% at the start of the year and about 21% at the finish. Much of
the underperformance was the result of its energy holdings, which sold off
through the year, and over worries over potential trade barriers,
politicized pipelines, and an increasingly stifling regulatory environment
in Canada. Nevertheless, the fund has been a consistent winner, and has
FundGrade A+ Award for four consecutive years, from 2014 to 2017.
Earlier in the year, managers
Greg Dean and Stephen Groff took profits in financial names and with the proceeds added to more
defensive, yet attractively valued, consumer staples names.
Despite the underperformance in 2017, the managers reiterated their view
that the investment thesis of the names they hold in the portfolio remain
intact. They believe the companies are creating wealth, and that in time,
the markets will recognize this, pushing their stock prices higher.
Valuations remained a concern, which is why the managers took a defensive
tilt, keeping their cash balance at around 20%. That has proven to be a
prescient stance, given the rise of market volatility through early
From a sector perspective, they were overweight energy, industrial
services, and consumer services at the end of December, while being
underweight materials and healthcare.
Top holdings at Dec. 31 included transportation company
TFI International Inc. (TSX: TFII), oil and gas firms
Tourmaline Oil Corp. (TSX: TOU) and
Keyera Corp. (TSX: KEY), manufacturer
Middleby Corp. (NASDAQ: MIDD), and consumer services firm
Boyd Group Income Fund (TSX: BYD.UN).
Despite the weak short-term performance, the longer-term numbers have been
excellent. For the five years ending Dec. 31, the fund delivered an average
annual compounded rate of return of 14.1%, outpacing the index and peer
group. Even more impressive, volatility has been well below average, and
the downside protection has been excellent. For the past five years, the
downside capture rate has been less than 20%.
Looking ahead, given the portfolio’s extended valuations, I would expect to
see a more muted return. However, given the disciplined, proven investment
process used, I would reckon volatility to remain well below average,
making this a good way to gain access to Canadian small caps.
Cambridge Pure Canadian Equity Fund
Canadian Small/Mid Cap
FundGrade A+ Award:
Greg Dean since Aug. 2012; Stephen Groff since Aug. 2012
CIG11109 (front-end load)
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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