Evolution of the Mawer Global Balanced Fund
When the Firm was founded in 1974 by Chuck Mawer, the initial focus was on managing money for private clients. It was only later that Mawer expanded into mutual funds and institutional money management. This is no trivial fact. Our private client roots forever shaped the way we look at risk: in absolute terms. For private clients, “risk” is the prospect of impairing capital and Mawer’s role is to manage that risk. Someone famous put the idea of managing absolute risk more eloquently: “Rule #1: don’t lose your client’s money. Rule #2: don’t forget Rule #1.”
Absolute risk is very different from “relative risk,” which is often a key focus for others in the industry. Relative risk refers to how a portfolio is positioned compared to its benchmark and the resulting relative performance. This is a “keeping up with the Joneses” view of the world. We are not necessarily saying that there is anything wrong with viewing risk from a relative perspective, but Mawer has always viewed risk in absolute terms—this was ingrained into the organization from its inception. This focus on absolute risk also drove an index insensitive philosophy. To us, it doesn’t matter whether a stock is in an index or not; rather, we allocate capital to the best opportunities possible, judging them by their fundamental merit. Without a doubt, a good part of Mawer’s success in adding value for clients can be attributed to being index insensitive.
As Mawer evolved into an index insensitive, independent firm (both by our geographic heritage and internal ownership), we began to ask ourselves: "Why not take the “broader is better” philosophy to the next level? Why not go global?" And so we did. Mawer launched the International Equity Fund in 1987. Twenty years later, we launched our global small cap strategy. In 2009, we launched global equity. Throughout this history we built one common equity platform to allocate capital globally. We continued to take the view that “broader is better.”
Our next step in our global evolution was the launch of the Mawer Global Balanced Fund. Why did we do this? Well, partly because “broader is better.” We needed to provide clients with a balanced option that overcomes the Canadian home bias. A true global balanced portfolio should improve the resiliency of the portfolio over time, not overexpose it to a narrow range of companies and sectors. But the other reason for launching the Global Balanced Fund is due to its inherent structure: it addresses the idea that correlations between global equity markets have changed.
In the “old world,” international equity markets were less correlated. Within a given market, companies, and investors were more domestically focused and there was greater geographic isolation. Europe might zig when the United States zagged, offsetting each other to reduce portfolio risk. Portfolio Managers would shift allocations to geographic blocks to manage risk and try to improve returns.
That was the old world.
Now the world has globalized. China is reforming, the Berlin wall fell, the Maastricht Treaty was signed, and the world became “flat.” Even Canadians globalized, dropping RRSP foreign content restrictions in 2005.
Companies globalized too. Today, where a company’s head office is located often has little relationship to where it does business and the risks it actually bears. For example, Nike is headquartered in the United States, yet a large percentage of its profits come from China.
So how can we manage risk better in this new world? The answer is that we need to manage risk with more granularity. If this is the game of golf, walking onto the course with a driver, five iron, and putter will not yield the optimal results. A full suite of clubs is required to address the specific risks during the game. Why not build a global balanced portfolio stock by stock? So that’s exactly how the equity portion of the Mawer Global Balanced Fund is built. Just like using a sand wedge to address the very specific risk of getting out of the beach, we can adjust the weight of a specific stock to suit the economic climate. This bottom up approach is then coupled with the stability of investment grade Canadian and Global bonds.
The Mawer Global Balanced Fund—a relatively new fund with a lot of history.