By Scott Ronalds

In the final installment of our series marking our 5th anniversary, we look at a distinguishing feature of our investment philosophy - undexing.

Our Small-Cap Fund is at the top of its game. Over the past year (ending April 30th) it has gained 13.6% while the market, as measured by the BMO Small Cap Index, has fallen -13.8%. It’s been zigging as the market’s been zagging. Over the past five years the fund has gained 6.2% per year, while the small-cap index and the S&P/TSX Composite Index are up 1.3% and 1.1%, respectively.

What’s more, the fund’s annual returns since inception have been less volatile than those of the market, although it hasn’t been a smooth ride. There have been stretches of time where the fund has significantly underperformed the market. In 2009, for example, the fund was up 14.6%, while the index was up 75.1%. The table below shows the fund’s dispersion of annual returns in comparison to the BMO Small-Cap Index.

*Feb 13 - Dec. 31, 2007

The manager’s style (Wil Wutherich) is clearly not benchmark oriented – a distinguishing feature of all our funds and a key tenet of our investment approach. We call it undexing. This approach has rewarded investors so far, and we believe it will generate superior returns over time (see our blog posting on Active Share). But patience is key. Unitholders have had to stomach periods of underperformance.

It will be the same going forward, in that the fund will lag the market over the short- and medium-term at times. Wil’s strategies won’t always be working out and there will be periods when his approach is out-of-favour (e.g., 2009) and unitholders will be cursing us (our Global Fund is currently going through such a stretch).

But we’ve got thick skin. And one of the most important things we can do is to help build some ‘investing calluses’ on our clients’ hands by shedding light on performance and other related issues. It’s what helps make them better investors.

Note: The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all dividends or distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Important information about the Steadyhand funds is contained in our simplified prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.