What can you say, without using superlatives, when two of the three top-performing funds in the Canadian small/mid-cap category over the past 10 years, and three of the top five performers in the category over the past five years, are all managed by the same individual? Hard to believe, but Jeff Mo, portfolio manager at Mawer Investment Management, has done just that. And racked up a long list of FundGrade A+ Awards™ to boot.
He runs not only Mawer’s in-house offering, Mawer New Canada Fund (11.1% ten-year and 10.8% five-year average annual compound returns through February 2016), but as sub-advisor, also manages the BMO Enterprise Fund Advisor Series (9.9% over 10 years, 10.8% over five years), and the HSBC Canadian Small Cap Equity Pooled Fund (12.3% over five years).
In fact, the Mawer New Canada Fund has been at or near the top of the long-term performance rankings for all funds in Canada throughout the past 28 years, with an impressive average annual compound return of 13.9% since inception in 1988. That means original investors have now earned almost 5.5 times their initial investment. That accounts for its FundGrade™ “A” rating for February, as well as its four consecutive annual FundGrade A+ Awards.
All three funds are managed identically, according to Mo, although operational variations may result in different performance during any given period. “The biggest differences are in the fee structures,” says Mo. “Mawer doesn’t have a fund specifically for advisors, for example, so we use [the BMO fund] to tackle the advisor channel.
“The other difference is in timing,” says Mo. “Withdrawals or contributions can have small timing differences, one fund may be slightly earlier or later, and that can affect returns.”
Small differences aside, how have Mo and his predecessor (Martin Ferguson, now retired) managed to maintain their top performance rankings so consistently for so long? What kinds of investments keep generating such stellar returns?
“We are bottom-up investors and look for a combination of good businesses with good management, trading at good prices,” Mo says. “What separates us from other funds is that we focus on a particular type of business model. We look for wealth-creating companies, meaning companies that earn returns on capital that are higher than their cost of capital.
“And we believe companies with a sustainable competitive advantage will generate wealth over a long period of time,” Mo adds, “so we buy them and then we hold them for a very long time.”
Sounds simple, at least in the telling, and this strategy has secondary benefits – the long-term holding strategy means low turnover (around 15% a year), which translates into low trading activity and hence a very low 1.45% MER for the Mawer fund (1.7% for HSBC, but a higher 2.8% for BMO’s Advisor fund). “We tend not to need a sprawling infrastructure,” says Mo.
And so all in all, there’s no way to avoid saying something to the effect that any of Mo’s funds would be a perfect core equity holding for any Canadian investor – there, the superlative is avoided, kind of. But lest you be tempted to call Mo right away, all three funds are now closed to further investment. “There’s a hard cap on all the funds – no new investors, and no new money from existing investors,” says Mo.
“Sometimes these funds are included in other funds, balanced funds for example, so you may be able to access them that way,” Mo adds. “It would likely be a small portion of the other fund’s portfolio – probably single digits. It depends on those funds’ access strategy. Our strategy is to have a hard cap across the board. We want to do what’s right for all our investors, and so we no longer dilute [their positions] with additional money.”