Small cap funds review: First half of 2017

Greg Dean's picture

Dear fellow Fundholders,

I had the opportunity to spend a week out West with our clients in June and we are always humbled by the continued support. At Cambridge we have always done our best to put the needs of our clients first, and I think in many ways this has been easier to do given we ourselves are very significant clients. I came away from the trip thinking that many may have forgotten, in this industry-wide focus on “fees” and “passive vs active,” the fact that there is a significant amount of value being delivered for that fee. The problem is that the industry as a whole is not delivering enough value for that fee, so it has allowed lower-cost options to promote themselves as being superior to an index-like mutual fund. There is no debating that if you want a benchmark return and are willing to take the same amount of risk as the benchmark, the best way to do that is through an index ETF. I don’t know about you, but there aren’t many things in my life where all I care about is the fee I am paying and where I spend little to no time on what I am getting for the fee I am paying.  So yes, our funds cost more than an ETF, but we offer a lot more value and remain laser-focused on continuing to be able to demonstrate our value add through superior risk-adjusted returns over the long term. We have always tried to position our firm and our approach as a valuable piece of the overall client experience, and we recognize it is simply one piece of a bigger puzzle.

Everyone at Cambridge wakes up every day focused on delivering investment excellence. We believe that if we are true to our mission statement to “exemplify the highest standards of wealth management,” we will clearly be able to demonstrate to clients the value they are receiving for the fees they are paying.

Our goal is to deliver long-term superior risk-adjusted returns and we feel very comfortable taking on less risk than the market when we believe the markets’ risk appetite is high (as we do today) and opportunities are harder to find. We always try to focus clients to the right-hand side of the table below (since inception returns) as that is the return we obtain as owners of our funds over the long term. 

Over the last year our team has visited 12 countries. Personally I have been to the UK and Germany thus far, with plans to visit Japan and Australia this fall. I rarely agree with something that Jim Cramer says but have long agreed with his belief there is always a bull market somewhere, and we have never had more resources here dedicated to finding the best opportunities for our clients.

From a positioning standpoint, the major change has been to reduce the US exposure in our global holdings and increase the UK weight. This came about courtesy of President Trump, whose election has led to a positive sentiment shift on US banks—positions which we have reduced considerably. You will often find the biggest areas of interest for us are the ones where the headlines are the most negative (Brazil and Canada 2015, Europe 2011), and right now the UK is definitely seeing more than its fair share of negative headlines, and we believe it to be fertile hunting ground for great long-term ideas.

We have been consistent from day one about the importance we place on investing in companies that control their own destiny or have “self-help” opportunities available to improve their moats. It is only then that we don’t have to worry as much about what President Trump will do or not do, or what interest rates will do in the short term, or when the Fed will begin to taper. The time spent discussing these things and the exhaustive list of “risks” over the last 10 years (fiscal cliff, EU debt default, Grexit, Brexit, etc.) is time taken away from helping clients earn a better return. We have found that focusing on the risk that everyone shares or is front-page news is rarely the right thing to do for our clients, and often reacting to those fears costs clients meaningfully in the long run. As Warren Buffett will constantly remind people: “Be greedy when others are fearful and fearful when others are greedy.”

The largest detractors to overall investment returns in Pure Canadian Equity and Canadian Growth Companies were Tourmaline, Spartan and Transforce. There was quite a violent rotation out of cyclical stocks, especially oil and gas stocks here in Canada. We were not immune from the sell off and believe a lot of the best returns over the next three to five years will likely come from this area. Outside of Canada, overall returns in Growth Companies Fund were held back by our investments in Tesco PLC and BTG Pactual Participations Ltd.  Tourmaline was also held in Growth Companies, which detracted from overall performance. 

The largest positive contributor in Pure Canadian Equity and Canadian Growth was Sleep Country, while owning CCL Industries also positively impacted both portfolios. In our holdings outside of Canada, B&M Retail contributed positively to each portfolio, while Seria benefited our portfolios with higher foreign content limits (Growth Companies and Canadian Growth Fund).  The good news is there was no real correlation to those positive returns but merely very high quality companies that are continuing to execute and are beginning to be awarded more credit by the stock market. In the case of Seria, it is now approaching our upside, and so we have begun reducing the position in the Cambridge Growth Companies Corporate Class as well as Cambridge Canadian Growth Companies Fund with about a 40% return on our investment. Recall, it used to trade at a very meaningful discount to Dollarama on price-to-earnings. That gap has closed, and it now trades at a premium!

July 29th will mark the three-year anniversary of the Cambridge Growth Companies Fund, and I honestly believe our best years are ahead as we continue to improve.

Thank you for your continued support!

Greg Dean

P.S. If you have not yet seen our full mission statement, it is:


“Continually earning your trust
by exemplifying the highest standards of wealth management
and by investing your family’s money as we do our own family’s.”


This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. This commentary may contain forward-looking statements about the fund, its future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Submitted by Jim Durnin on

Very good article Greg... It always helps when things are put into a proper perspective... thanks Jim

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