Norrep Fund. How We Built one of the Best Performing Mutual Funds in Canada over 15 Years.

July 06, 2015

  • Norrep Fund, a diversified small cap fund, is one of Canada’s best performing mutual funds over the last 15 years, regardless of asset class*
  • The Fund has outperformed its benchmark by 910% since April 12, 2000**
  • Norrep has developed a proven and repeatable investment methodology that has built wealth for clients over long periods of time
  • To commemorate its outstanding achievement, Norrep Fund is open to new purchasers until December 31, 2015

At Norrep Investments, we are passionate about what we do. Passion is important in this business because our products are intrinsically tied to our clients' financial well-being. We start with the premise that if we do what is right for the investor, we will end up with not only a long-term customer - but also an advocate for our firm. While this sounds like a cliché and is easy to say, the tough part is proving it with a track record that stands up to the test of time. After 15 years, I am proud to say that Norrep Fund has provided clients with one of the best rates of return of any mutual fund in Canada regardless of asset class, averaging 15.9%* per year. That outstanding result is a product of our passion, channeled into a disciplined approach to investing.

  YTD 1 Year 3 Year~ 5 Year~ 10 Year~ 15 Year~ Inception~
Norrep Fund* 7.0% -6.8% 15.6% 15.5% 9.9% 15.9% 17.5%
Benchmark** 0.9% -15.9% 5.8% 5.0% 4.7% 6.3% 6.5%

˜Annualized

Over time the market can throw a lot at an investor that can test their resolve; from recessions to rate hikes, wars to commodity booms and busts, bubbles to financial crises. At Norrep, we strived to develop an investment methodology that would not only participate when the markets were strong, but also help protect capital when the market’s trajectory was negative. Our style is unique and I firmly believe offers a strong competitive advantage when searching for investment opportunities. We incorporate the best elements of value investing while ensuring our companies grow faster than their peers. We employ strong fundamental research while confirming that our portfolios always exhibit attractive quantitative attributes. Add in a lot of hard work and years of experience and we believe we have a winning formula for success.

This best of the best approach continues to be refined to ensure our methodology remains relevant in today’s investing environment and keeps pace with the challenges of tomorrow.

Fifteen years is a long time and we certainly learned a lot of important lessons along the way. Below is a description of some of the elements of our methodology that have helped make our track record one of the best in Canada:

1. Be Different

If your portfolio resembles the index too closely, you will underperform after fees and expenses. If you buy an exchange-traded fund (ETF), you are almost guaranteed to underperform the relevant index. Norrep Fund is nothing like the index; it is a concentrated portfolio of the best 30-50 small businesses we can find. Regrettably, most funds charge similar fees regardless of how closely they resemble their benchmarks. In fact, empirical evidence shows that over 80% of mutual funds in the U.S. are similar to their index^, which will have the likely result of underperforming their benchmark.

2. Own Dividend-Paying Stocks

Over long periods of time, the compounding of dividends adds materially to returns. Furthermore, a company that has committed to paying a dividend and increasing it over time has much greater confidence in its financial stability and future prospects. The majority of the businesses in Norrep Fund pay meaningful distributions.

3. Concentrate your Portfolio in Your Favourite Names

Norrep Fund’s top 10 stocks usually comprise 40 to 50 percent of the portfolio. We have true conviction in our top ideas and provide the benefit of active management through a concentrated portfolio.

4. Keep the Fund Size Small

It is easier to outperform consistently with a small sized fund. All of our firm’s products are comparatively small. Funds with a large amount of assets to manage may limit their investable options and reduce trading flexibility.

5. Think Independently

Making decisions based on emotion might provide some comfort, but usually only for a short period of time. Many inexperienced investors tend to invest with the crowd and make buy and sell decisions based largely on emotion. The psychology of investing is powerful and can wreak havoc with long-term performance. Norrep’s extensive experience in the markets and our disciplined focus on quantitative attributes helps us avoid making decisions based on emotion.

6. Align Management Incentives with Performance

Powerful research shows that a significant investment by the portfolio manager results on average in 2.6% outperformance annually versus funds with no portfolio manager contribution†. Anecdotally, my wife keeps reminding me about our largeallocation to Canadian small caps. My response is "what otherasset class provides better wealth creation opportunitiesthan small caps?"

7. Buy Companies with Great Investment Metrics

Numbers and ratios don’t lie. Meanwhile every management team that I have met is charismatic, believable and often very optimistic. Great attributes are typically the hallmark of great businesses. Our rigorous focus on great portfolio metrics helps ensure a very attractive portfolio of stocks.

8. Embrace Inefficiency in the Markets

This advice goes hand in hand with embracing small companies in your portfolio. Smaller companies are typically underfollowed and often under-loved, which provides opportunities for professional managers who understand valuations and can evaluate growth potential. Small companies often provide the best combination of value and growth and are unique in their ability to experience exponential change.

9. Take Advantage of Market Volatility

With market volatility often comes opportunity. At Norrep, we know that accelerated returns can come from short-term market gyrations through trading around core positions.

Our Guiding Principles Underscore our Beliefs We put our clients first with an investment methodology that helps provide the foundation for outperformance, but can also withstand the worst of the markets’ forces. Norrep Fund was our first product, launched over 15 years ago. Today, we are proud to say that it is one of the best performing mutual funds in Canada, regardless of asset class, over a 15 year period. The Fund’s exceptional track record speaks for itself, as it has only witnessed a loss in two calendar year periods and has outperformed its benchmark 87% of the time. This is a testament to our passion for investing and providing quality wealth creation opportunities for our clients. Our disciplined investment methodology provides access to an asset class where inefficiencies exist and plenty of growth opportunities present themselves. Today, the objective of the Fund continues to be, as it was 15 years ago, to create wealth for our clients through our proven and repeatable investment methodology.
 

* As of June 30, 2015
** Benchmark is BMO Small Capitalization Equity Only Weighted Total Return Index, as of June 30, 2015
^ Source: "Active Share and Mutual Fund performance" by Antti Petajisto, July 2013
† Source: "Does your fund manager invest in his or her own mutual fund", The Globe and Mail, September 19, 2013

Norrep Fund was capped to new purchasers on March 1, 2005 and opened on May 22, 2015. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the investment fund or returns on investment in the investment fund. Unless otherwise stated, opinions expressed in this document are those of the author and are not endorsed by the author’s employer. No guarantee, either express or implied, is made that the information in this document is accurate, complete or up-to-date. The contents of this document are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Statements about the historical performance of investment products are accurate only as at and for the periods specified.

For More Information:

Alex SassoChief Executive Officer & Portfolio Manager

Alex Sasso is the Chief Executive Officer (CEO) and a Portfolio Manager at NCM Investments. Alex leads the firm’s small/mid cap investment team. He has over 21 years of investment management experience. Prior to joining NCM in 2004, Alex worked at…

Notice to Reader:

Unless otherwise stated, opinions expressed in this document are those of the author and are not endorsed by the author’s employer. No guarantee, either express or implied, is made that the information in this document is accurate, complete or up-to-date. The contents of this document are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.