Can Mawer Balanced do the job as the only fund in my portfolio?

This Bronze-rated fund isn't perfect, but it is worthy of consideration.

Shehryar Khan, CFA 16 March, 2015 | 5:00PM

Question: I currently hold all of my retirement money in Mawer Balanced. Is this a wise choice? Is that fund diversified enough to be my sole holding?

Answer: Let me preface my answer with an analogy. Buying a home is one of the most important financial decisions an individual or family can make. Yet once you've bought it, the job isn't done; you now have to maintain it. Those gutters have to be cleaned out in the fall and driveways shoveled in the winter. Unexpected things happen -- you need to get a leaky roof fixed, a driveway repaved, or sometimes you just want to renovate the kitchen. You also have the option to attempt to do those things yourself, or you can hire someone to do them for you. It's a continually evolving process.

The same applies to your portfolio: you've come up with an investment plan that is aligned with your family's long-term goals, either on your own or with your advisor. Again, you have the choice: do you want to buy individual funds to meet your asset mix needs, or can a balanced fund, like Bronze-rated Mawer Balanced, do the job for you?

Buying individual funds offers the opportunity to buy the best available option within each asset class and diversifies your exposure to fund managers, but it involves potentially higher fees and more work, including manual rebalancing. Additionally, having multiple funds in your portfolio means more fund companies and managers to monitor for personnel changes, deterioration in performance, etc.

Going the balanced fund route provides you with a one-stop shop and has its own inherent pros and cons. The balanced fund will take care of your asset allocation and rebalancing concerns for you, as well as giving just a single fund to monitor. However, the likelihood that one fund company can provide exceptional management in both equity and fixed income is rare. You're also exposed to a single investment philosophy and style.

For investors with a more traditional bond-to-equities asset mix, Mawer Balanced is an excellent example of a strong balanced fund offered by a firm that has won Morningstar's Fund Company of the Year award two years in a row. Lead manager Greg Peterson is primarily responsible for managing this fund's asset mix. Shifts tend not to be extravagant, as the fund doesn't steer too far away from its base mix of 40% fixed income and 60% equities. Additionally, the fund offers geographic diversification benefits, giving unitholders exposure to global markets.

Rather than buying individual stocks and bonds, Peterson buys units of other Mawer funds. The managers of Mawer Canadian EquityMawer New CanadaMawer International Equity and Mawer Global Small Cap, all rated Gold by Morningstar analysts, have built enviable records on their respective funds. Peterson also holds Mawer U.S. Equity and Mawer Canadian Bond, two funds not currently rated by Morningstar.

Mawer's equity philosophy focuses on investing in quality companies with sustainable business models trading at discounts to their intrinsic value. This has led the firm to shy away from the materials sector in recent years. The firms' fixed-income process doesn't have any significant advantages, but bond manager Michael Croft, understanding the limitations, also doesn't get adventurous. He doesn't swing for the fences and makes only minor duration and yield-curve positioning bets relative to the benchmark FTSE TMX Canada Universe. The firm has made improving the depth of resources on the fixed income team a priority, and last year hired a new credit analyst to bolster the team.

For a fund that has clear strengths and weaknesses, a competitive fee could help investors determine whether it represents appealing option. With a management-expense ratio of 0.96%, Mawer Balanced is significantly cheaper than the category average of 2.23%, even when taking into account the fact that it doesn't pay a trailer fee to compensate advisors.

For investors who prefer to aim for a best-of-breed portfolio and have asset class specialists manage their money, this fund's weakness in its fixed income and U.S. equity sleeves definitely rule it out as an optimal investing option. But for those who are comfortable with a single solution to their investing needs, Mawer Balanced represents a solution worthy of further investigation.

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About Author

Shehryar Khan, CFA

Shehryar Khan, CFA  Shehryar Khan, CFA, is a senior investment analyst for Morningstar’s Investment Management group.