EdgePoint Funds Buck the Trend

The Canadian stock picks from these medalist fund managers defy geographic expectations.

Michael Dobson 26 January, 2024 | 4:09AM
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Toronto

EdgePoint continues to be an outlier. One would have expected its Canadian stock selection to have dragged on its global equity fund. After all, the Morningstar Canada Index lagged the Morningstar Global Markets Index by more than 3.0 percentage points per year for the decade ending December 2023.

And yet, for EdgePoint, its Canada picks didn’t seem to hold it back. The philosophy of managers Tye Bousada and Geoff MacDonald and the rest of the firm’s team produced surprising results across their two equity funds. Bronze-medalist EdgePoint Canadian Portfolio Series F gained 10.5% annualized from January 2014 to December 2023 and EdgePoint Global Portfolio Series F nearly matched it by rising 10.2% over that same time.

In relative terms, however, the Canadian Portfolio Series was much more successful than the Global Portfolio Series. The Canadian Portfolio’s return ranked at or near the top percentile among all funds in its Morningstar category over the last three-, five-, and 10-years. It also beat the Morningstar Canada Index by 11.5, 5.2, and 2.8 percentage points annually over those periods, respectively. EdgePoint Global’s rankings were not bad; its ten-year return was firmly in the top quartile of the Global Equity category. Instead, results show how good EdgePoint’s Canadian stock selection has been.

The team’s Canadian market knowledge and experience, high conviction stakes in underappreciated companies and long holding periods make for potent, albeit sometimes volatile, results. The funds earn a Bronze and Silver Morningstar Medalist ratings on their cheapest share classes for their demanding but rewarding processes.

One Philosophy

Focusing on misunderstood companies is the bedrock of EdgePoint’s investment strategy. Leaders Bousada and MacDonald try to understand stocks like business owners. They buy and hold names suffering from market overreactions. This requires discipline to stay the course if positions start off very poorly.

They combine this with stock-picking skills and high conviction. Their top ten holdings in the Canadian Portfolio represent 45% of the strategy. Their top position, Fairfax Financial FFH, was 8.3% of assets alone in September 2023. The Global Portfolio holds a more reasonable 3.5% position in the stock. Restaurant Brands QSR takes up more than 5% of both funds.

Such positions can seem like poor bets over short periods, but they have often added value over the long term. These strategies are supported by the firm’s focus on gathering domestic business insights.

The Canada Edge

EdgePoint integrates local expertise at the very start of new analyst training. New analysts must first cover a list of Canadian companies under the watchful eye of both Bousada and MacDonald. These include names that the managers have already long known. As a result, the investment team collectively develops a far deeper knowledge of the Canadian stock universe, which frees them to uncover far more new ideas for their Canadian and Global portfolios.

For example, the Canadian Portfolio held Fairfax and Restaurant Brands long before they the Global Portfolio bought them in 2020. Not only have the two stocks outperformed the Morningstar Canada Index since the funds bought them, but they also beat the far more competitive Morningstar Global Markets Index.

These are only two examples, but they show how EdgePoint can use their strength in Canadian stock selection to benefit their global equity fund. This is more impressive considering how Canada’s equity market underperformed the wider global equity universe. For this manager, at least, it has paid to stick with Canada.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
EdgePoint Canadian Portfolio Series F50.00 CAD1.26Rating

About Author

Michael Dobson  Michael Dobson is an Associate Manager Research Analyst at Morningstar Canada

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