The World According to a GARP Fund
02/14/2012 8:45 am EST
If you haven’t drunk the Kool-Aid that promises a broadening improvement in economic and market conditions, and you’re still interested in playing it safe until those “green shoots” turn into hearty plants, this fund is worth considering, writes James Kedzierski of Canadian Mutual Fund Adviser.
We last mentioned Bissett Canadian Equity Fund in our September 27 issue, as one of seven funds that should hold up relatively well in an economic downturn. We continue to hold this view.
Bissett Canadian Equity follows a “Growth At a Reasonable Price”, or GARP, investment approach. Simply put, this approach consists of buying a stock before its price accelerates beyond its underlying company’s earnings capabilities.
In choosing stocks, Bissett managers apply a “bottom-up” research approach to identify companies with a history of sustainable, replicable growth. One of the many selection criteria in this process is that chosen stocks have a modest price-to-earnings ratio.
In the case of Bissett Canadian Equity, the fund’s managers, Garey Aitken and Tim Caulfield, use GARP investing to seek long-term capital appreciation through a portfolio of mid- to large-capitalization Canadian equities. The fund, therefore, concentrates on the shares of well-established Canadian companies, and because of this we give the fund our highest quality ratingâ€"Very Conservative.
Funds that we rate "Very Conservative" might not turn out to be outperformers in fast-rising markets, but they tend to hold up relatively well when those inevitable setbacks occur. That has been the case with Bissett Canadian Equity.
The fund’s compound annual growth rate of 5.1% these past ten years is about average within its category. This returns ranks the fund 59th among 145 Canadian equity fundsâ€"a respectable, though unspectacular, performance.
But the fund has performed in the top half of its category more often than not in the past ten years. In three years, it was a top-quartile performer, and in another three years, it was a second-quartile performer.
Even more important for conservative investors is the fact that the fund held up better than most of its peers in the financial crisis of 2008 and the difficult markets of 2011. In 2008, when the average Canadian equity fund lost 34.2% of its value, Bissett Canadian declined by 33.4%, to rank 115th among 322 funds.
And in the year ended November 30, while the average fund in the category suffered a 5.8% loss, Bissett’s loss was just 2.7%â€"a result that ranked it 73rd among 425 funds.
Our confidence that the fund should hold up relatively well in future market setbacks is reinforced by the fact that its current managers are not lacking experience. The more senior manager, Garey Aitken, has 15 years industry experience; he has been with Bissett since 1998, and he has been a manager of the fund since 2003.
Given its past record and experienced management, we think Bissett Canadian Equity is an appropriate holding for investors seeking a very conservative, core Canadian equity fund that follows a GARP investment approach. Just be sure you have a time frame of at least five years before you invest in the fund.