Pender Balanced Fund - Review of 2011
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If you are looking for a balanced fund for the current market environment then look no further than the Pender Balanced Fund. The Fund has the following unique characteristics:
Specialist Managers
The Fund is run by three specialist managers:
- Ken O’Kennedy, CFA, of Dixon Mitchell – dividend-paying North American equity
- David Barr, CFA, Pender’s Chief Investment Officer – small cap Canadian equity
- Matt Shandro of Fulcra Asset Management – North American investment and non-investment grade fixed income
Each manager undertakes fundamental analysis, seeking positions that have the potential to generate returns, and have built-in margins-of-safety to preserve capital and protect on the downside.
In the case of the fixed income portfolio, Mr. Shandro is not simply procuring government bonds to complement the Fund’s equity portfolio. As an expert credit analyst, Mr. Shandro is picking corporate issues that aim to have a short duration and above average yields, as well as a margin-of-safety.
Preserving Capital and Keeping Downside Risk to a Minimum
Ken O’Kennedy has stated that “our process is designed around capital preservation and building a portfolio of companies with growing cashflow streams.” Mr. O’Kennedy and his team at Dixon Mitchell do this in two ways.
- Cash - when the market is viewed to be entering a period of higher volatility, the Fund raises cash (average cash on hand in the Pender Balanced Fund for 2011 was 10.8%). This can be used to take advantage of market volatility by buying new positions or adding to existing holdings at favourable prices.
- Security Selection - when a security is added to the portfolio it must meet stringent qualitative, quantitative and fundamental underwriting criteria, and must also provide an asymmetric risk/reward profile.
Given the market volatility in 2011, how did the Fund measure up to its goal of minimising downside?
We looked at Maximum Drawdown – the maximum amount of value lost by a fund at any point during the year – for a selection of Canadian balanced funds, essentially the Fund’s peer group.
Starting with an investment of $10,000 on January 1, 2011 we tracked each fund’s performance from January 1 to December 31, 2011. By identifying peak and trough levels during the year, we were able to determine each fund’s Maximum Drawdown. We found that within the group the Pender Balanced Fund had the lowest Maximum Drawdown for the year, -6.3%, an indication that we were successful in our goal of keeping downside risk to a minimum.
To see a chart with the full data analysed, please click here.
Expect the Unexpected – What if Interest Rates Rise?
Many balanced funds are sensitive to potential interest rate increases as they are heavily invested in longer-dated government issues. The Pender Balanced Fund is designed to protect investors if rates rise. The fixed income portfolio of the Fund has a short duration (average portfolio duration for 2011 was just 2.43 years) but investors are not penalised for waiting. The average portfolio yield was 4.29% for 2011. In addition, the Class F units of the Fund were ranked in the top 7% in the category of Global Neutral Balanced funds on Globefund based on returns for 2011 (Class A units were in the top 10%).
Expectation for 2012
The Fund will prepare for lower economic growth in 2012, however it continues to have access to unique fixed income opportunities and equity valuations remain attractive. It is positioned to react quickly to market fluctuations in order to meet its objectives of preserving capital, minimizing volatility and generating returns.
For standard performance data on the Pender Balanced Fund, please click here.