A Top-Rated Mutual Fund is Losing its Manager. Should You Worry?

This Gold-rated fund has outperformed its peers in 8 of the past 10-years.

Michael Dobson 5 February, 2024 | 2:13AM
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Gold-rated Mawer Global Equity remains one of the strongest mutual funds in Canada. Excellent execution by lead manager Christian Deckart, support from every other investment team at the firm, and strong systems that help the managers stay disciplined give confidence that this fund can continue to outperform over the long term.

Incoming chief investment officer Deckart will take over many of the duties of the outgoing Paul Moroz; it’s a decision years in the making that will play out in March 2024. The duo had managed this fund since Deckart was named to Mawer Global Equity in March 2016. The co-portfolio manager structure, however, will remain. Manar Hassan-Agha was recently elevated to comanager in late 2023. It’s an unusual choice. Hassan-Agha has spent less than three years at the firm, and this represents his first time as a manager. Deckart’s leadership and experience does quell concerns.

A few novel tools aid its intensive process. Deckart and Hassan-Agha seek quality companies at a reasonable price.

This involves companies with economic moats and management teams that efficiently allocate capital. The managers review the portfolio quarterly, adjusting their holdings as they evaluate companies through a quality/return potential matrix. To add a new name, they will review many different companies with help from Mawer’s M42. This system records the opinions of analysts and managers as well as management meeting notes, which lets Deckart and Hassan-Agha sift through more than 10,000 companies.

Key Morningstar Metrics for Mawer Global Equity Fund

The resulting portfolio maintains the traits expected from the team’s approach. Mawer Global Equity tilts just slightly into growth; the value-growth score of 195 is a shade higher than the global equity Morningstar Category average of 188. Its current trailing return on invested capital of 17.9% is also slightly higher than the Morningstar Global Markets Index’s 16.9% as of November 2023. Deckart has also overseen a period of low portfolio turnover; calendar-year portfolio turnover has averaged just over 20% from 2017 to 2022. Certain names showcase Deckart and Hassan-Agha’s personal touch. Publicis Group PUB and BMW represent unique positions that do not appear in any other Mawer equity fund.

Performance has impressed since Deckart joined. Mawer Global Equity A’s return from March 2016 to December 2023 matched the MSCI All Country World Index on an absolute basis and ranks in the top quartile among category peers.

The lone retail share class has slightly higher fees than peers but should not dampen the fund’s prospects.

How This Top Mutual Fund Works

A few tools help the managers keep a systematic approach. The first is the "Matrix," a graph that charts out different holdings along the dimensions of quality and return potential. This provides a guideline, but not a rule, for position sizing. The second is a Monte Carlo-style approach to the discounted cash flow analysis, which gives a range of possible intrinsic values for any given stock. This quant approach helps the managers establish price levels that will trigger discussions of whether to buy or sell the stock.

The resulting 50-80 positions in the portfolio represent a mixture of ideas from Mawer’s other equity teams and some unique names picked by Christian Deckart and Manar Hassan-Agha. The combination produces many of the portfolio characteristics expected for a philosophy that can at times lean toward growth companies at slightly more expensive valuations. Large and common names like Microsoft and Marsh & McLennan are top-10 positions in Mawer Global Equity, for example. The portfolio’s current average price/earnings ratio of 16.7 times is slightly higher than the category index’s 15.5 times and the current average trailing return on invested capital of 17.9% is also slightly higher than the category index’s 16.9% as of November 2023. Deckart has overseen a period marked by long-term commitment; turnover in the portfolio has never exceeded 33% in any calendar year under his watch, and it routinely comes in under 20%.

The fund though is not limited to ideas from other managers at the firm. With Hassan-Agha’s recent elevation came a few ideas like Publicis Groupe that do not appear in any other equity fund at Mawer. Deckart also displays his knowledge of European equity, holding on to BMW even after Mawer’s EAFE strategy sold the name. The fund does slightly tilt away from North America compared with its peers and the category index. The region represented 56.6% of the portfolio, 6.1 percentage points less than the category index. Europe conversely represents 29.1% of the portfolio, which is 16.8 percentage points more than the category index.

Who Manages This Highly-Rated Mutual Fund?

With lead manager Paul Moroz stepping down from portfolio management duties in March 2024, this fund will be led by incoming CIO Christian Deckart and newly appointed Manar Hassan-Agha. Deckart has plenty of experience both at the firm and running this strategy, being named on Mawer Global Equity in March 2016. His promotion to CIO places him in an excellent position to benefit from the perspectives and insights of Mawer’s eight other equity teams. Deckart selected Hassan-Agha as comanager. This decision was unusual given Hassan-Agha’s relative inexperience; he has been at the firm for less than three years and this represents the first time he has been a portfolio manager. However, these concerns are mitigated with Deckart retaining full control over the strategy.

The team leverages proprietary systems to harvest the insights from the rest of the firm’s 30-plus research staff, vital given that this fund does not have dedicated support. But Deckart and Hassan-Agha separate themselves by their willingness to look beyond positions in other Mawer equity funds to create their best ideas portfolio. Publicis Groupe SA represents one such position: It’s a top-10 holding in the portfolio, covered by Hassan-Agha, and is not held in any other Mawer fund as of November 2023.

More About the Asset Manager Behind This Gold-rated Mutual Fund

Calgary-based Mawer is an investment boutique with offices in Toronto and Singapore. Founded in 1974 as a privately owned, independent firm, Mawer remains 100% employee-owned. Currently, 66 employees, predominantly from the investment management team, comprise the ownership cohort. The firm continues to grow organically with total assets under management topping CAD 80 billion as of October 2022. While the firm offers only institutional and direct-to-investor share classes, it has built significant relationships with Manulife and BMO, further expanding its retail distribution reach. These attributes should help Mawer remain private and independent.

Mawer’s investment-centered culture draws on a well-defined investment process and risk management that emphasizes downside protection, which have together produced stellar risk-adjusted returns over the long term. The firm has seen very little investment-professional turnover over the years, and portfolio-manager tenures on funds average more than 12 years. To protect the integrity of its mandates, Mawer has done well at managing capacity; it has a track record of applying "soft caps," at which time the firm carefully manages the level of investment from new clients. Meanwhile, since 2013, the firm’s Canadian small-cap strategy has been "hard-capped," meaning even existing clients have limits on new investment.

These strengths aside, the firm's fixed-income offerings, which represent 11% of firm assets, are not as strong as its equity ones. To improve, the firm hired experienced fixed-income portfolio manager Crista Caughlin in 2020 to lead and grow that team. Mawer's two largest funds have Above Average fees, though fees are Average overall.

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Mawer Global Equity A45.94 CAD-0.33Rating

About Author

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

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