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Jeff Hyrich | June 11, 2015

5 ways our portfolio differs from most global funds

September will mark my 14-year anniversary on Trimark Global Endeavour Fund. It’s a big part of my life and I am always happy to talk about the many ways the portfolio Erin Greenfield and I manage is different from other global funds on the market – and, more importantly, why the differences matter.

Here are five key ways our fund differs from most in its category.

 

Buy smaller, grow

Many global equity funds in the marketplace today focus on very large companies. Alternatively, we tend to focus on businesses in the mid-cap range, based on the belief that smaller companies can grow faster for longer.

I think about the investment universe as a pyramid. There are about 50,000 publicly-traded companies. The top ten global equity funds are concentrated in less than 0.5% of the market – the big-name large-caps – which amounts to roughly 275 companies.

We tend to invest in companies from the other 99.5%.

Looking back over the last 25 years, mid-cap stocks have performed 2.6 times better than large caps^.

Global mid-caps

Source: Bloomberg L.P.

Choose well, hold longer

We aim to hold companies for long periods of time. Where another global equity manager might hold a company for year, we have companies in the fund that we’ve owned for
more than a decade. Many fund managers are traders, while we prefer to pick a growing company and let it run. How can you make a lot of money when you own something for only a short time period?

Own fewer companies, gain more knowledge

Trimark Global Endeavour Fund has 31 holdings, as at March 31, 2015. Our peers average 88 stocks in their funds. We find companies we believe in and make significant investments in them. In order to do this, we need to fully understand the businesses we own. With 80-plus companies, that is impossible.

Explore global markets, diversify exposure

Trimark Global Endeavour Fund is a truly global fund. About two years ago, the Fund had 50% exposure to the U.S., but markets changed and we’ve now dropped U.S. exposure to 32% (as at April 30, 2015). While we still own quality U.S. companies, including Ross Stores, Inc. and Microsoft Corp., recently we’ve been finding our best ideas in emerging markets. The Fund now has 15% exposure to emerging regions, including South Africa and Chile. This is exposure to companies and regions you won’t find in other global funds.

Pay less, get more

The Fund trades at a 27% discount to its index, and yet we believe it’s much stronger in terms of the quality of the companies, return on equity and debt on the balance sheet. Essentially, our valuation is 27% lower, but our return on equity (ROE) is 31% higher, meaning that the percentage of company income returned to shareholders is considerably higher for the group of companies we own than it is for the Fund’s benchmark (based on average ROE for the most recent annual reporting period). Seventy per cent of the companies in the portfolio don’t have any debt and 90% of the Fund is in companies with minimal to no debt (Source: Invesco Canada).

Global mid-caps

For me, this simply means that investors get more, but pay less.

If you have any questions about the Fund or the five points I discussed above, please feel free to leave them in the comments area below.

^ Based on a comparison of the S&P 100 Index (large-caps) and the S&P 400 Index (mid-caps) for the period January 1991 to March 2015. Source: Bloomberg L.P.

Source: Morningstar Research Inc., as at March 31, 2015.
Peer data represents an average of the 10 largest funds in the Global Equity category by assets under management. The 10 largest funds in the Global Equity category as at March 31, 2015 or latest reported: TD Global Low Volatility, Mackenzie Cundill Value, Mackenzie Ivy Foreign Equity, Epoch Global Equity, EdgePoint Global Portfolio, Capital Group Global Equity – Canada, Trimark Fund, CI Cambridge Global Equity, Templeton Growth, RBC Global Dividend Growth.

Source: FactSet Research Systems Inc., as at March 31, 2015. The Fund is actively managed, portfolio characteristics are subject to change. You can not invest directly in an index.

* The premium or discount for valuation is calculated as a simple average of the premium or,
discount – of the Fund versus its benchmark – for three individual valuation measures: FY1 P/E ratio (represents the price-to-earnings ratio based on consensus forecast earnings for the next fiscal year); P/CF (price-to-cash flow); and P/S (price-to-sales). ROE represents average return on equity for the most recent annual reporting period. Debt to capital is a leverage ratio. Long-term growth represents consensus analysts expectations for estimated long-term growth rate of stocks in the fund and index.

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One response to “5 ways our portfolio differs from most global funds

  1. Jeff and Erin:

    This is an excellent and succinct explanation of the fund, its objectives and your modus operandi. It is rare that the public is given such a simple but elegant explanation. I intend to share this with my clients and colleagues.

    All the best,

    Rod

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