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Charity fund managers navigate difficult second quarter

The Canadian market was not in a very charitable mood in the second quarter, making for suboptimal conditions for a trio of money managers investing for a higher cause.

Romolo Tavani/iStockphoto

The Canadian market was not in a very charitable mood in the second quarter, making for suboptimal conditions for a trio of money managers investing for a higher cause.

The three Bay Street veterans are participating in an investment challenge dedicated to raising money for the Holland Bloorview Kids Rehabilitation Hospital, which is the largest facility of its kind in Canada. The Toronto hospital's mission is to improve the lives of children living with disabilities .

Each of the fund managers started with $25,000 donated by their respective firms. And each is managing that money on behalf of Holland Bloorview over the course of the calendar year, with all capital and investment gains going to the hospital. Additional donations of cash or securities can be made to each manager's Investor Challenge fund at

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In navigating the second quarter, the participants faced a Canadian market that largely sat out a global equity uptrend, as the re-emergence of the global oil glut tested domestic investors. Meanwhile, U.S. equities continued to edge higher, with little to speak of in the way of volatility – hardly an ideal backdrop for stock pickers.

Here is how each one fared.

The manager: Brandon Snow, chief investment officer, Cambridge Global Asset Management

The fund: Cambridge Global Equity Fund

Going into the year, Mr. Snow felt the market was putting too much faith in U.S. President Donald Trump's agenda, by bidding up sectors and names likely to benefit from his policies.

Now, with most of the world's central bankers nudging toward the reduction of stimulus, the market is failing to appreciate how a global shift in monetary policy might hurt stock prices, Mr. Snow said.

His caution has him sitting on a cash pile in excess of 20 per cent of the fund's assets. And the second quarter gave him little reason to use any of that dry powder.

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"Everything's been pretty stable, markets are just slowly grinding up and to the right. Without any dislocations or underlying volatility, it doesn't open up great chances to add new companies," he said.

An atypical combination of a rising Canadian dollar and falling oil prices hurt quarterly performance on both counts, offset by continued strength in tech stocks and exposure to improved European and Brazilian currencies.

The fund was down by 0.3 per cent in the quarter.

The manager: Brendan Caldwell, president and chief executive, Caldwell Investment Management

The fund: Caldwell Canadian Value Momentum Fund

The challenge with value investing is it can take the market a long time to change its mind on an undervalued stock. But, by screening for stocks that meet both value and momentum criteria, this fund has a better chance at avoiding value traps, Mr. Caldwell said.

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"If you can combine these two disciplines, you can look for value stocks the market is just starting to recognize," he said. This is one of four of the firm's funds being employed for the purposes of this investment challenge.

This fund is concentrated, holding 20 Canadian names or fewer, and is unlike the typical large-cap Canadian portfolio. Consumer stocks and industrials account for two-thirds of assets, while financials and resource stocks make up only about 15 per cent. The fund's biggest new position in the second quarter was in shares of BRP Inc., which "trades at a sizable discount to its primary competitor despite much better operational performance," Mr. Caldwell said.

The fund is up by 3.4 per cent last quarter.

The manager: Wesley Roitman, managing partner, Romspen Investment Corp.

The fund: Romspen Mortgage Investment Fund

It's a virtual certainty that this fund will return about 8 per cent this year, Mr. Roitman said.

Remarkable for its consistency, the fund has posted positive returns in every month for the past 20 years, with annual gains over that time ranging from 7.4 per cent to 10.6 per cent.

The firm's portfolio of mortgage loans is largely sheltered from changes in interest rates and the real estate market, with the only real risk to returns coming from mortgage defaults.

"There is very little that could cause fluctuations in our performance," he said.

Romspen provides mortgages to commercial, industrial and residential property developers in Canada and the United States who typically can't secure bank financing. While that means going further out on the risk spectrum, loan losses over the past decade have averaged just 40 basis points of invested capital.

"We try to look for pockets of the market where banks aren't active. We try to fill that gap, and earn a premium for it," Mr. Roitman said.

The fund returned 1.9 per cent in the second quarter.

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