GLC’s Mid Cap Canada fund delivers strong returns, a compelling growth outlook and excellent diversification
With GLC’s Mid-Cap Canadian Equity (GWLIM) fund, you have the opportunity to invest in publicly traded companies with above-average growth potential – and an opportunity to boost the long-term capital appreciation of a well-diversified investment portfolio. Most core equity funds tend to hold large-cap stocks, so adding mid-cap company exposure to your portfolio can create enhanced diversification for your overall portfolio strategy.
North American mid-cap companies – these are established opportunities
To qualify as a mid-cap stock, a company must have grown to at least $500 million in revenues (and up to $3.5 billion in market capitalization) for Canadian companies or $2 billion in revenues (and up to $10 billion in market capitalization) for those in the U.S. They’re past the initial hurdles of a new start-up company and are established but with room to grow, scale-up and become even stronger and more successful companies. “These emerging and newer-to-market companies are the building blocks of our mandate and the market,” explains Bryan Shearer, lead portfolio manager of GLC’s Mid-Cap Canadian Equity fund.
Mid-cap companies tend to be less well-known than their dominant large-cap peers, making in-depth and in-house research and analysis a must. That’s where GLC’s disciplined and well-defined investment processes come in – there are no shortcuts to the hard work of research and deep analysis if you want to find the most attractive opportunities to hold. And maybe even discover the next big thing when it comes to emerging leaders in an industry or sector of the market.
Specifically, the portfolio management teams want to see an attractive combination of stock criteria, including a proven track record of successfully executing on business plans. For example, holdings in GLC’s Canadian mid-cap fund tends to:
- Be generating consistent and sustainable earnings growth;
- Have created strong returns on invested capital; and,
- Have strong management teams.
An excellent complementary strategy for your portfolio
GLC’s Mid Cap Canadian Equity fund is ideal for investors seeking to diversify their portfolio’s equity holdings beyond style and regional exposures:
- Stronger growth attributes – GLC’s Canadian mid-cap funds’ typical portfolio characteristics include stronger growth and growth momentum metrics than the broad Canadian market index (the S&P/TSX Composite Index).
- Broad sector exposure – Unlike core and mainstream large-cap equity funds in Canada and the U.S. where the same Canadian big banks or U.S. tech stocks dominate most portfolios, the Mid-Cap Canadian Equity (GWLIM) has broader opportunity sets in lesser-known holdings across all 11 sectors, including emergent tech opportunities that are driving change and innovation within their industry.
- More adaptive to change – GLC’s Mid Cap Canadian Equity fund invests in innovative, nimble companies with fewer layers of management relative to most large-cap companies. This means mid-cap companies tend to be able to adapt quickly to shifting market conditions with business plans focused on scalability for a fast and strong growth cycle, or to downshift nimbly and suddenly when situations demand. This also means that mid-cap stocks can be more volatile than their large-cap peers, so it’s important that mid-cap funds are part of a well-diversified portfolio for investors where investment plans aren’t likely to be derailed by short-term swings in returns.
Specialized portfolio management expertise
Mid-cap mandates tend to be overlooked by some mainstream asset management companies in favour of larger, more established companies where few undiscovered ‘gems’ are to be found. For the Mid Cap Canadian Equity (GWLIM) fund, active management is key to adding value – allowing the portfolio managers to capitalize on the “sweet spot” of a company’s growth evolution: not too small for the business strategy to be untested, nor too big to be bogged down and limited in their opportunity to adapt, disrupt and expand into new markets. These are the stages of growth where companies gain experience and demonstrate good management and scalability. Experience and insight into this unique part of the capital markets is key to driving outperformance, as is having a disciplined process to find companies poised for growth.
GLC’s Mid Cap Canadian Equity portfolio management team has a proven track record of identifying and capitalizing on emerging opportunities and trends, and that’s led to strong investment performance.
Strong long-term performance
GLC’s experience and expertise is highlighted by the strong returns of GLC’s Mid Cap Canada Equity mandate. The proof is in its continuing performance: strong long-term absolute returns and meaningful long-term outperformance versus the benchmark.
- GLC’s Mid Cap Canadian Equity fund has been celebrated and rewarded for its industry-leading performance by predominant investment research companies and peers alike. Mid Cap Canadian Equity (GWLIM) is first quartile for year-to-date, 1-, 2-, 5-, 7- and 10-year performance for Morningstar Direct’s Canada Pooled Funds (as of March 31, 2020). It has won the Fundata FundGrade A+ Award – celebrating Canada’s top performing investment funds – in 2017, 2018 and 2019. Only 4% of investment fund products available in Canada receive such recognition.
- GLC’s Mid-Cap Canadian Equity (GWLIM) showed performance leadership during the recent extreme market volatility of Q1 2020 by meaningfully outperforming their benchmarks during the quarter.
Canadian mid-cap stock case study – Kinaxis Inc.
Kinaxis Inc. may not be a name familiar to most people. The supply chain management software company is based in Ottawa and went public in 2014. At the time, GLC’s portfolio management team for the Mid Cap Canadian Equity (GWLIM) fund performed their diligence research and met with company management and concluded the initial $16 IPO price was overvalued compared to their ability to meet earnings expectations given an untested business model. Over the next two years, GLC continued to watch the company’s progress, examined their quarterly results closely and met with management numerous times. After exceeding earning expectations and proving their business model was scalable for the growth the company was experiencing, Kinaxis was added to the portfolio at a purchase price of $19. By mid-2017, the price per share had appreciated to $85. The company has continued to be one of the fund’s largest holdings.
So, why invest in GLC’s Canadian mid-cap fund?
These funds have a strong history of offering:
- Strong long-term returns and high-growth potential;
- Excellent portfolio diversification when included in a portfolio of core equity funds – a strong complement to positions in Canada.
- An attractive opportunity for investors who are seeking higher growth potential to go along with their higher risk-tolerance; and,
- An experienced portfolio management team with a proven track-record of identifying and capitalizing on emerging opportunities and trends.
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This commentary represents GLC’s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor.