I have been meaning to write about the new fund we launched 10 short weeks ago but it has been pretty hectic and I apologize for the delay. We are very excited to introduce something that we think will take advantage of opportunities we are seeing in the market in a way our existing mandates cannot, to the same extent. I'm sure you are all aware that we capped the Cambridge Canadian Growth Companies Fund back in March because we wanted to preserve its ability to take advantage of opportunities in Canadian small and mid-cap stocks which is not a very big or liquid universe. We always thought we could take our expertise and extend it beyond Canada in a more significant way. We now think we have the right team, structure, and most importantly, a market that has created immense opportunity to own very high-quality, fast growing companies at prices we think are very compelling.
In terms of the specifics, I wanted to highlight a few things about this new fund:
- We have capped the Canadian portion at around 10% of total assets (maximum geographic and market cap flexibility).
- This is a highly concentrated fund (35-40 companies).
- We are focused primarily on small and mid-cap companies who are growing its cash flow per share significantly faster than the market.
We have long discussed the possibility of a global growth companies-type mandate. We wanted to wait until we had the resources in place and our pipeline of ideas was double or triple the amount to populate this fund. We are convinced that we are there now and everything you have come to expect from a Cambridge mandate in terms of philosophy and process will remain the same. Most importantly, we (Brandon and I) seeded it with a very significant amount of our own (new) money.
The way to think about this growth fund is that it is focused on companies with very high return on invested capital and operating margins, low leverage, and the willingness and ability to inorganically allocate capital. We believe that these three elements have the potential to generate superior cash flow per share. Note, I did NOT say revenue growth or market cap growth! An important distinguishing factor of this fund versus other competing offerings is – if the company is not already profitable (i.e. generating cash) we will not own it (sorry Amazon!).
Hopefully this provides a good overview of the new fund and why we think now is the time to offer it.