Mawer Investment Management 2014 Annual Commentary

2014 was a special year for the firm, marking 40 years since our founder, Chuck Mawer, decided to open one of the first investment counselling firms in Western Canada.

Susan Hall, Mawer’s second employee who is still active with the firm today, often talks about Chuck’s legacy of “doing the right thing.” Today, we strive to follow this mantra in both the way we treat our clients and how we invest.

40 Years of Doing the Right Thing – A Look Back

When Chuck first opened the doors in 1974, the firm primarily invested in Canadian equities and bonds for mostly Calgary-based private clients and foundations. When Gerald CooperKey joined the firm in 1981 and began managing international equities, he encountered a lot of skepticism: Invest internationally from Calgary? Can that be done? Apparently the answer was, and continues to be, “yes.” The second decade also saw the launch of Mawer Mutual Funds that made our Canadian, U.S. and international equity, balanced and bond portfolios accessible to a broader range of clients.

By 2000, Mawer had grown to 30 people and was applying a consistent investment process that was followed across all asset classes. In March of 2002, Mawer reached $1 billion in assets under management. It was around this time that institutional investors began to take more notice of Mawer’s investment approach and performance, leading to recommendations from Canadian pension consultants and alliances with financial institutions. This in turn allowed us to continue building depth across our investing, client and operating teams.

Over the last five years, global investing has been a major focus at Mawer. The launch of Global Small Cap (2007), Global Equity (2009) and Global Balanced (2012) mandates offered clients a global approach to supplement existing international, U.S. and Canadian portfolios. We also opened a Toronto office in 2011, primarily to support institutional clients in central and eastern Canada, and a Singapore research office in 2013. We are now registered in the U.S., and have clients on both sides of the border.

Highlights from 2014

In 2014, Mawer remained 100% independent, owned by 37 of the 115 individuals who work at the firm. Our assets under management have increased to over $26 billion, with investments in over 50 countries. Highlights for the year include being recognized by Focus Consulting Group as a Focus Elite company (based on culture surveys of over 100 investment firms) and being named Analysts’ Choice Fund Company of the Year for the second year in a row at the Morningstar Awards. In addition to a number of individual fund awards, Mawer fund managers Martin Ferguson and Jeff Mo were recognized as Domestic Fund Manager of the Year.

The Next 40 Years

So what can you expect from Mawer going forward? The short answer is: much of the same. We believe that focusing on a few important things is the key to long-term, sustainable and consistent success as investors: our core values (put clients’ interests first, act with integrity, pursue excellence, work as a team, and think long-term), a strong and cohesive culture, a disciplined investment process, and independence.

That being said, we live in a complex and rapidly changing world, and recognize that if we don’t evolve, adapt, and get better, both as individuals and as a team, we will fall behind. Investing is hard, and investing consistently over time is even harder, but that is what our clients expect, and should expect, from us. As much as we value our strong history and solid foundation, our culture encourages new ideas and trying new things in a way that builds on our legacy. Going forward, we plan on putting a greater emphasis on technology, both internally (trading, data analysis etc.) and externally (offering clients more choices in how they interact with us and access information).

Ultimately, we know that as proud as we are of our first 40 years, it is the future that counts for our clients. Our commitment is to stay true to our values, build upon our foundation and get better all the time. We do all of this so that we can be the very best investors we can be and continue to earn your trust over the next 40 years. And last but never least, we will always follow Chuck’s tried and true mantra: Do the right thing.

Michael Mezei

Market Overview

Last quarter we noted the growing dichotomy between the economic health in the U.S. relative to other major world economies. This divergence became even more apparent this quarter. From an American perspective, the latest GDP data reveals that growth accelerated at the fastest pace in 11 years and robust employment gains pushed unemployment rates to multi-year lows. As expected, with the economy seemingly firing on multiple cylinders, the U.S. Federal Reserve ceased its asset-purchase program and reiterated its intention to normalize interest rates, albeit in a patient way.

Elsewhere, the picture was less rosy. In Europe, the growth outlook continued to deteriorate this quarter, with several European countries citing a downward trend in inflation and lowered expectations for future growth. The possibility of deflation taking hold in Europe appears to be rising. In response, the European Central Bank embarked upon another round of quantitative easing as they endeavored to inject capital into the banking system to spur lending and foster growth. It remains to be seen whether these efforts will prove successful.

Compounding Europe’s challenges is the precarious situation in Russia. The significant plunge in oil prices is unmistakably detrimental to their economy, particularly as they try to withstand sanctions imposed because of their political aggression in Ukraine. Whether Europe’s already fragile banking system can absorb a significant downturn or outright financial crisis in Russia, remains unknown. The re-emergence of Greece in the headlines as they contemplate their membership in the European Union comes at a particularly vulnerable time.

Meanwhile, Japan experienced a tumultuous quarter. Despite immense stimulus efforts from the Bank of Japan, the country reported a second consecutive quarter of economic contraction, and has now technically entered a recession. In response, Prime Minister Abe called an immediate election. His party emerged victorious and soon authorized even greater stimulus measures and tax cuts to spur growth. With Europe and Japan struggling to address anemic growth, and many of the world’s oil-producing nations facing an abrupt, and potentially painful, adjustment to drastically lower oil prices, the apparent health in the U.S. economy seems like an anomaly. As a result of such divergent economic conditions, we’re now embarking upon a path in which the U.S. Federal Reserve is taking steps to normalize their accommodative policy while authorities in many other regions are expanding the scope of their stimulus efforts. This divergent monetary policy will likely be an important theme during 2015.

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