This year’s rebound in global markets has left some highly rated funds behind their categories and benchmarks. It may come as a surprise to some that the experienced and talented Bill Kanko’s CI Global Leaders Fund makes the list, but this underperformance is expected when one considers its strategy.
For the year to date, the fund has underperformed its benchmark – the Morningstar Global Gross Index – by 2.95% and has underperformed its category by 2.36%.
The CI Global Leaders Fund Strategy Often Bucks the Trend
The strategy, which boasts an active share of over 90%, doesn’t look or act like its benchmark.
The fund has a focused portfolio of around 30 stocks. Although this is not a contrarian strategy, the fund's sector weights consistently deviate from its benchmark and peers. Its current stake in the industrials sector is 3.5 times that of the Morningstar Global Gross Index’s helping in that sector, while its technology allocation is almost half that of the benchmark.
As a result of this variance from the index, the fund's performance often diverges from that of the Morningstar Global Gross Index.
The 9% annualized gain of the fund's F share class from its June 2006 inception to May 31, 2023, surpassed both the Morningstar Global Markets Index and the global equity Morningstar category by 0.8% and 3.4% respectively. Along the way, it has occasionally looked out of favor, though, such as in 2021, 2019, 2018, and 2014.
The Fund Is Underweight Top Performers Like the Technology Sector and U.S. Equities
Investors might have expected the fund to perform poorly over the past five years, because it intentionally held less of the high-performing U.S. market. Instead of overweighting the technology sector and U.S. equities, which have both shown strong results compared to other sectors and countries in the MSCI World Index, the fund chose to give them less weight.
However, the fund's strategy of focusing on stock selection, particularly in the industrials sector, has compensated for the lower exposure to technology stocks and U.S. equities. Morningstar's attribution analysis reveals that the team led by Kanko has been successful in picking stocks, as exemplified by the 78% increase in the value of mining equipment maker Weir Group PLC (WEIR) since the fund purchased it in December 2019 through May 31.
The Fund is Deliberately Different
Deliberately departing from the benchmark risks doing worse, but it can lead to outperformance when done as part of a proven and time-tested investment strategy.
CI Global Leaders focuses on companies with strong value propositions, expanding market share, favorable returns on capital, and a commitment to research and development, or so-called high-quality investments.
It’s a small universe that allows the managers to focus on 25 to 30 carefully selected names that they understand well. That allows Kanko and team to focus the portfolio on their most high-conviction holdings and hang onto them for years. The fund keeps 44% of its assets in its top 10 and has a modest turnover ratio of 35%.
CI Globl Leaders Has a Stable and Collaborative Team
A capable and disciplined team supports Kanko. He and co-manager Matias Galarce worked together at a previous employer. Heather Peirce, who joined the team later, has further strengthened their collaborative efforts.
The fund’s stable team, disciplined-yet-flexible investment strategy, and willingness to look different from the benchmark sets it apart. The fund's ability to outperform its benchmark and category peers is a testament to its unique investment style and managers’ expertise.
For investors seeking a deliberately different investment approach, the CI Global Leaders Fund may be worth considering.
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