Invesco Canada Ltd. is turning down the taps for Trimark Canadian Small Companies, which it says is taking in more money than its portfolio managers can manage without diluting performance. While asset growth has been brisk, the fund has dropped out of the top quartile in recent measurement periods.
The company will close the Morningstar 4-star-rated fund to new investors, effective at the close of business on Oct. 8. Existing investors, consisting mostly of Invesco itself through its funds of funds, along with third-party institutional clients, will continue to be able to make new investments in the fund, which has a total of nearly $700 million in all series. The bulk of the assets, close to $500 million, are held in the institutional Series I, which is not available to the general public.
Assets for the fund as a whole are up roughly 30% since the start of the year, which has boosted Invesco's fees but made the fund more challenging to manage. The fund's Series A has slipped to being a second-quartile performer in the Canadian Small/Mid Cap Equity category over the past two years ended Aug. 31, down from top quartile over three, five, 10 and 15 years.
"The limited size of the Canadian small-cap market makes it difficult to deploy large amounts of capital in a timely fashion," said lead manager Jason Whiting, in a Sept. 24 release. "We've decided to close the fund to new investors in order to maintain the integrity of its investment strategy."
Contributing to the fund's below-median performance this year has been management's insistence on maintaining high cash reserves in the 20% range. In a mid-year regulatory filing, Invesco Canada said the fund's large cash holding was due to a lack of opportunities as markets continue to reach record highs. "The team believes the cash weight should act as a shock absorber in the next market correction, while providing them with the ability to invest in attractive opportunities as they present themselves."
The partial capping of the fund will better enable the fund managers to carry out their mandate to invest at least half of its non-cash assets in Canadian small- and mid-cap companies. This year, they've fallen short of that threshold.
As of August, the fund held only 36% of its assets in Canadian stocks out of a total of 78.9% held in non-cash assets. By comparison, non-Canadian equity holdings, mostly in U.S. stocks, made up 42.2% of the fund's assets.
This asset mix reflects the trend over the past couple of years for the fund to become less Canadian, due to what the Trimark team considers to be lack of local stock-buying opportunities that meet their value-oriented criteria. The portion held in Canadian stocks has shrunk by eight percentage points from 44.1% at the end of 2013, while the foreign-equity component is 10 percentage points higher, up from 32.2%.
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