The international small-cap strategy of Montreal-based Global Alpha Capital Management Ltd., which has generated impressive performance for institutional clients, is now available to retail investors.
Ninepoint International Small Cap, a prospectus-offered mutual fund for which Global Alpha is the sub-advisor, went on sale on March 15. The minimum initial investment is $1,000.
The fund will employ the same approach -- combining individual stock selection with an emphasis on big-picture investment themes -- as the $636-million Global Alpha International Small Cap, a pooled fund for which the minimum investment is $1 million.
Among institutional funds in the Global Small/Mid Cap Equity category, the Global Alpha pooled fund has the top Morningstar Rating of 5-stars for its risk-adjusted returns. Its inception date is in December 2009, so it lacks a 10-year track record. But over the past five years ended Feb. 28, it has a 22.17% annual return, compared with 17.14% for the total return of the MSCI World Small Cap Index.
Differentiating the Global Alpha pooled fund's holdings from its institutional benchmark is its absence of North American stocks. The Global Alpha strategy's investment universe consists of small-cap stocks domiciled in the developed markets in both Europe and the Asia-Pacific region including Japan.
The international small-cap strategy is to hold 50 to 70 stocks that the portfolio managers have identified as having unrecognized and accelerating earnings growth potential. At the time of purchase by the fund, according to the Ninepoint prospectus, the holdings will be primarily shares of companies with market capitalizations ranging between US$100 million and US$3.5 billion.
Founded in 2008, Global Alpha specializes exclusively in global and international small-cap equities and currently manages a total of $1.3 billion. The team is headed by founder and chief investment officer Robert Beauregard, who has previously held portfolio-management positions with Natcan Investment Management and the Caisse de dépot et placement du Québec.
Majority-owned by its management team, Global Alpha is an affiliate of Connor, Clark & Lunn Financial Group, whose affiliates collectively manage approximately $72 billion. Global Alpha's other pooled fund is the $677-million Global Alpha Global Small Cap, which began in April 2010. It has a 3-star Morningstar Rating, also in the Global Small/Mid Cap Equity category of pooled funds.
Along with evaluating company fundamentals, Global Alpha's stock-selection process is structured to exploit investment themes such as consumers, demographics, the environment, innovation and outsourcing. The firm's macroeconomic research focuses on identifying major long-term cyclical and structural influences in world economies and stock markets, as opposed to geographic regions and industry sectors.
Even so, explicit risk constraints will ensure that the new mutual fund won’t be making any big sector bets. The Ninepoint fund will invest in at least nine of MSCI's 11 standard sectors and 18 of the 24 industry groups. Moreover, no single industry will account for more than 10% of the fund.
Another aspect of Global Alpha's investment process is the integration of environmental, social and governance (ESG) criteria. This is reflected in the high Morningstar Sustainability Rating for the firm's international small-cap pooled fund. However, the firm's global small-cap pooled fund has a below-average rating.
The Ninepoint mutual fund will be placed in the International Equity retail category, in which nearly all of the other mutual funds have all-cap or primarily large-cap mandates. And there are no Canadian-listed exchange-traded funds in this category that specialize in small-cap stocks.
Though it is entering an underserved retail niche within international equities, Ninepoint International Small Cap won't be alone. It joins CIBC International Small Companies and Investors International Small Cap Class. Each of these funds currently has a 5-star Morningstar Rating, which the Ninepoint newcomer will have to wait at least three years to try to match in the retail arena.
The Ninepoint fund is sponsored by Toronto-based Ninepoint Partners LP, the privately owned firm that in August 2017 took over the formerly named Sprott family of Canadian-domiciled mutual funds and hedge funds.
The management fee of Ninepoint International Small Cap, not including expenses, is a steep 2.5% for Series A, which is sold through commissioned brokers and dealers. This series allows advisors to charge a front-end load, and Ninepoint pays them trailer commissions of up to 1% a year.
The other main advisor-sold purchase option is Series F, for fee-based advisors who bill clients directly for their services. The management fee for this series is 1.5%.
For self-directed investors, the fund's Series D will charge a management fee of 2%, which is among the highest in the industry for this purchase option. The trailer commission payable to discount brokerages is up to 0.5%, equalling the most generous payout in the mutual-fund industry for a Series D fund.
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