What the “Great White North” and the “Land Down Under” Have in Common

Geoff Scott's picture

As you may recall, CI Financial Corp. (“CI”) and Australia-based GSFM Pty Limited (“GFSM”), formerly Grant Samuel Funds Management, launched their first joint product in 2017, which is managed by Cambridge Global Asset Management (“Cambridge”) and distributed to Australian institutions and retail investors by GSFM. This is a significant milestone, as it is the first CI-managed product to be distributed outside of Canada.  

Last month, we spent a week in Australia to launch the Cambridge Global Smaller Companies Fund for the Australian market. During our trip, we reflected on the likenesses between Canadian and Australian investors and their needs despite being about 14,000 km apart! 

In many ways, Canada and Australia share striking similarities – both countries are former British colonies that today are federal states/provinces with constitutional monarchies, and with populations that are spread across massive, largely uninhabitable land masses.  

The parallels continue from an economic and investment perspective. Both countries use the dollar as currency, are targets for inbound investment in property and assets from other countries (i.e., China, India, U.K., U.S., Europe) and are open economies favouring free trade with strong economic ties to the U.S. and the rest of the world.  

The chart below (see Exhibit 1) shows the benchmark indexes of the two countries. Both countries’ economies are highly dependent on the resource sector (metals and mining, and energy) and dominated by the financial sector (see Exhibit 2).  

Exhibit 1: Relative growth of the Australian S&P All Ordinaries and the Canadian S&P Toronto Stock Exchange Composite indexes over the past 20 years

Relative growth of the Australian S&P All Ordinaries and the Canadian S&P Toronto Stock Exchange Composite indexes over the past 20 years
Source: Morningstar Direct (as at April 30, 2019).

Exhibit 2: Sector comparison for Australian S&P All Ordinaries and the Canadian S&P Toronto Stock Exchange Composite indexes 

Sector comparison for Australian S&P All Ordinaries and the Canadian S&P Toronto Stock Exchange Composite indexes

Source: Morningstar Direct (as at April 30, 2019). 

From an investor perspective, the similarities also continue. Investors in both regions face similar challenges, and they show an interest in investing beyond their home country. Both Canadian and Australian investors can benefit from an allocation to global small-capitalization stocks due to the risk and return benefits it provides. This phenomenon, known as the “small cap effect,” was popularized in the early 1980s when Prof. Rolf Banz found that, on average, small-cap stock portfolios outperform large-cap portfolios on a risk-adjusted basis over time. As seen in Exhibit 3 below, from December 31, 2001 to April 30, 2019, small-cap stocks outperformed large-cap stocks over 80% of the time.

Exhibit 3: MSCI World Small Cap Index vs MSCI World Index (3-year rolling return)

MSCI World Small Cap Index vs MSCI World Index (3-year rolling return)

Source: Morningstar Direct (as at April 30, 2019). 

After conducting 35 meetings in five cities over five days, we left convinced that Cambridge’s investment philosophy and bottom-up fundamental process also resonates with the Australian investor. Cambridge’s ability to target value creating businesses at attractive prices, using a bottom-up fundamental process appeals to both groups.  

Australia is a new frontier for both CI as a whole and the Cambridge team in particular. We feel very fortunate to have partnered with GSFM and to support CI in this new market.  

We look forward to supporting a long-term partnership with our Australian clients, much the same way we have done so here with our Canadian clients. 

Geoff Scott

 

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Cambridge Global Asset Management is a division of CI Investments Inc. Certain funds associated with Cambridge Global Asset Management are sub-advised by CI Global Investments Inc., a firm registered with the U.S. Securities and Exchange Commission and an affiliate of CI Investments Inc. Certain portfolio managers of CI Global Investments Inc. are associated with Cambridge Global Asset Management. GSFM Pty Limited is substantially owned indirectly by CI Financial Corp. 

Published June 3, 2019. 

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