Morningstar Minute: Newest Medalist fund set for success

This Silver-rated PH&N fund has strong prospects for success despite a somewhat volatile track record.

Jeffrey Bunce, CFA 23 January, 2017 | 6:00PM
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Jeffrey Bunce: PH&N Vintage is our newest medalist in the Canadian equity category, earning a Morningstar Analyst Rating of Silver. Lead manager and co-head of Canadian equities, Doug Stadelman, takes an all-cap approach and focuses the fund on high-conviction ideas that result from his team’s astute bottom-up research.

This research is targeted at companies with growing businesses that have attractive reinvestment opportunities. The team spends considerable time building up a database of knowledge on the companies they follow and regularly meet with company management. All this work gives them a good read on a company and its ability to execute on its strategic plans.

On the valuation front, the team seeks to buy at a reasonable price, given a company’s long-term growth outlook. This lands the fund somewhere between core and growth on the style spectrum. In other words, don’t expect the team to be loading up on stocks from the bargain bin.

The team’s fundamental research is only half the story, though. They also spend a great deal of time constructing the portfolio, taking care to ensure that the fund’s returns, first and foremost, reflect the team’s security selection insights. They attempt to control sector and market exposures with the hopes of maximizing the impact of their stock picks. What you get is a portfolio that typically has a bias to smaller companies that are less tied to the movement of the market overall. Indeed, some of the team’s highest conviction picks are mid- and small-cap stocks like Badger Daylighting, Stantec and Home Capital Group.

This smaller cap bias has contributed to the fund’s almost two percentage point outperformance against the S&P/TSX Composite since Stadelman took charge in October 2009 through to the end of 2016. At the same time, it has also led to a more volatile track record than the index and most peers. For investors sensitive to higher volatility, this fund may not be a good fit. However, long term, the team’s thorough research and thoughtful portfolio construction provide this fund with strong prospects for success.

For, I’m Jeff Bunce.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Badger Infrastructure Solutions Ltd41.59 CAD-1.45
Home Capital Group Inc  
Stantec Inc110.47 CAD-2.26

About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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