Meritas takes unique approach with new income fund

By Doug Watt | May 5, 2006 | Last updated on May 5, 2006
2 min read

Considering Jarislowsky Fraser’s long history and solid reputation in corporate governance and shareholder rights, it’s a bit surprising that the company had never been approached by one of Canada’s socially responsible investing fund firms. So you could argue that Meritas Mutual Funds — a small player in the mutual fund world with just $120 million in assets — has pulled off something of a coup, hiring the firm as sub-advisor on the recently launched Meritas Dividend and Income Fund.

In fact, the fund has, in effect, two sub-advisors. While Jarislowsky Fraser handles the investment management side, Michael Jantzi Research Associates takes care of the SRI business, screening out firms that don’t meet Meritas’ social and environmental standards.

“We’re in line with Meritas because we look for an ethical management team,” said Blain Caverly, a senior partner at Jarislowsky Fraser at a fund launch for advisors on Thursday in Toronto. “They came to us,” he said. “They like that we’re well-established and have a risk-averse style.”

Caverly says Jarislowsky Fraser, established in 1955, focuses on long term trends and high quality stocks, avoiding small caps. “We look for industry leaders and we know our style works.”

The Jarislowsy Fraser equity portfolio contains about 70% Canadian stocks, but, in line with its low risk approach, is overweight in financials and underweight in energy compared to the S&P/TSX Composite Index.

The firm has nearly $60 billion in assets and its clients are mostly in the institutional sector, although the firm does have a sub-advisor relationship with 28 mutual fund and wrap programs.

“We’re excited with this new partnership because there’s very little opportunity to partner with Jarislowsky Fraser on the retail side,” says Meritas president Gary Hawton. “This doesn’t compare to any other fund on the market.”

Hawton says the investment research comes first, and the social screens — such as corporate governance, gender diversity and human rights on the positive side, and alcohol, gambling, weapons and tobacco on the negative side — are then overlaid by Jantzi.

Separating the two processes is key, says Hawton, freeing up Jarislowsky Fraser to concentrate on investment research. “We don’t do the screening because that would be a conflict of interest,” says Caverly.

Jantzi Research, which also works with Meritas on the Meritas Janzti Social Index Fund, typically screens out about 10-15% of stocks in an average portfolio.

The dividend and income fund will pay out monthly distributions to investors, and Meritas expects a total return of between 8 to 10% per year. Launched in February, the new fund is already one of the most popular in the Meritas family.

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Doug Watt