While some of the portfolio holdings are chosen individually by Mawer’s
in-house research teams, some choices are based on Mawer’s other fund
portfolios, most notably the
Mawer New Canada Fund, one of the best-performing Canadian equity funds – if not the
best – over the long term (with an average annual compounded return of
14.0% since its inception in 1988 but, alas, now closed to further
“Many individual securities are chosen by our analysts and held on a
segregated basis, but we also use our own versions of internal funds,” says Travis Goldfeldt,
Calgary-based co-manager (with Craig Senyk) of Mawer’s
Tax Effective Balanced Fund. “Most of the weightings are in eight different
asset classes, and we have long-term neutral weightings with guidelines for
how much we can move those weightings.”
When it comes to dealing with taxation issues, the managers employ a
combination of low turnover, astute asset selection, and “tax-loss
harvesting.” “Our investment concerns always take priority over tax
considerations,” says Goldfeldt. “First and foremost, we recognize that to
get a high after-tax return, you need to get a high before-tax return.
“On the equity side, we buy wealth-generating companies with good
management that are trading at a discount,” Goldfeldt explains. “But we
listen to our researchers, and if they have concerns about a company not
generating wealth, or concerns about the management team or the price, we
will trim the holding even if it’s showing a gain.
“We take a long-term perspective and try to keep equity turnover below 20%
annually; fixed income turnover is higher,” Goldfeldt adds. “We want to
realize the longer-term value of assets, but there are situations where the
value declines, so then we look for opportunities to sell at a loss and
switch out to more promising stocks with high correlations – we call this
On the fixed-income side, the fund’s aim is straightforward – maximize
after-tax yields. “We will make trades in order to get the best after-tax
yields,” says Goldfeldt. “We always ask ourselves, ‘Does it make sense from
an after-tax perspective?’”
Goldfeldt admits that sometimes it’s hard to make long-term fixed-income
decisions under uncertain conditions, as happened earlier this year when
Ottawa hiked rates twice in a few months, then reversed itself on
previously announced further hikes.
“Sometimes governments make it tough, but we try not to pick the direction
of interest rates,” says Goldfeldt. “We try to maintain our bond holdings
at the minimum [allocation] range, and that helps protect against yourself,
because it stops you from making changes based on the moment rather than on
the long-term perspective.
“For example, a few years back when rates started falling and people said
they couldn’t go any lower, they kept going lower for several more years,
and we even saw interest rates go negative,” Goldfeldt recalls, adding that
the range limit restricted the fund’s ability to act on those early – and
ultimately erroneous – predictions.
The net result is a portfolio that’s currently about one-third fixed-income
investments (primarily Canadian corporate and government bonds), and
two-thirds equities, loosely divided between Canada, the U.S., and
international markets. And judging from the most recent returns – 3.5% for
the month of October alone, 4.9% for the three months through Oct. 31 –
this fund appears fully capable of continuing to generate handsome
after-tax returns for its unitholders.
Olev Edur is an experienced financial and business journalist and a frequent
contributor to the Fund Library.
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