Mawer Canadian Equity Fund's Strategic Move: Significant Addition of Fairfax Financial Holdings Ltd

Mawer Canadian Equity Fund’s recent acquisition of 45,622 shares in Fairfax Financial Holdings Ltd (FFH.TO) for C$112.1 million underscores a calculated bet on an insurer with exceptional resilience in volatile markets. This move aligns with Mawer’s focus on “wealth-creating companies with strong management and long-term growth potential” [1], and Fairfax’s Q2 2025 results—net earnings of $1.4 billion driven by $952 million in investment gains—validate its appeal [5]. In a high-interest-rate environment, where insurers often struggle with asset-liability mismatches, Fairfax’s disciplined underwriting, conservative capital management, and strategic contrarian investments position it as a standout.

Valuation Metrics: A Discounted Powerhouse

Fairfax’s valuation metrics highlight its attractiveness. The stock trades at a price-to-book (P/B) ratio of 1.57 [4], a modest premium to its intrinsic value but significantly lower than the broader market’s P/B ratio of 2.1 for Canadian insurers. This discount reflects market skepticism about its exposure to interest rate fluctuations, yet Fairfax’s fundamentals tell a different story. Its book value per share surged 10.8% year-to-date to $1,158.47 [4], even after a $15-per-share dividend, while underwriting margins remained robust at a 93.3% combined ratio, generating $427 million in underwriting income [3].

The company’s liquidity further strengthens its case. With $4 billion in cash and equivalents [1], Fairfax can capitalize on market dislocations, as CEO Prem Watsa has historically done. For instance, during the 2020 market crash, Fairfax acquired undervalued assets in AI and data infrastructure, sectors now maturing into high-growth areas [1]. This liquidity buffer also allows it to maintain a conservative debt-to-capital ratio of 25.9% [1], ensuring flexibility to navigate rate shifts without compromising solvency.

Resilience in High-Interest-Rate Environments

Fairfax’s performance during the 2015–2025 high-rate period exemplifies its resilience. The stock delivered 59.59% returns over the past 12 months and 53.66% over three years [2], outpacing peers. This success stems from its dual strategy: leveraging rising rates to boost investment income while maintaining disciplined underwriting. In Q2 2025, investment gains totaled $952 million, including $74.8 million from bond portfolios as rates declined [5]. Management has acknowledged that falling rates increase the carrying value of fixed-income holdings, a tailwind that could persist if central banks ease policy [3].

However, Fairfax’s model is not without risks. A reversal in rate trends could pressure its investment income, which contributed 68% of net earnings in Q2 2025 [5]. Yet, its diversified portfolio—spanning equities, bonds, and alternative assets—mitigates this risk. For example, its 14.5% year-over-year book value growth [1] reflects gains across asset classes, not just interest-sensitive bonds.

Management’s Contrarian Edge

Prem Watsa’s leadership is a critical differentiator. His contrarian approach, exemplified by Fairfax’s 2020 investments in AI and data infrastructure [1], has historically generated asymmetric returns. These sectors, now central to the global economy, have delivered outsized gains as demand for AI-driven solutions accelerates. Watsa’s emphasis on “buying when others are fearful” aligns with Mawer’s long-term value orientation, creating a synergy between fund strategy and portfolio company ethos.

Conclusion: A Strategic Fit for Volatile Times

Mawer’s investment in Fairfax is a masterclass in insurer valuation. By targeting a company with a low P/B ratio, strong underwriting margins, and a liquidity buffer, the fund has secured a position in an insurer uniquely positioned to thrive in high-rate environments. While interest rate volatility remains a risk, Fairfax’s diversified portfolio and management’s contrarian instincts provide a buffer. As the insurance sector faces headwinds from inflation and regulatory shifts, Fairfax’s resilience—evidenced by its 59.59% 12-month return [2]—makes it a compelling addition to Mawer’s portfolio.

Source:
[1] Fairfax Financial's Strategic Discipline Fuels Resilience and Growth [https://www.ainvest.com/news/fairfax-financial-s-strategic-discipline-fuels-resilience-and-growth-2507101083a1b5392c103e9e/]
[2] Fairfax Financial Holdings Limited (FFH.TO) - Stock Analysis [https://portfolioslab.com/symbol/FFH.TO]
[3] FAIRFAX FINANCIAL HOLDINGS LTD. (FFH.TO) Q2 FY2025 [https://finance.yahoo.com/quote/FFH.TO/earnings/FFH.TO-Q2-2025-earnings_call-341322.html/]
[4] Fairfax Reports Strong Q2 2025 Earnings [https://www.analystock.ai/news/research_details/transcript/Fairfax%20Reports%20Strong%20Q2%202025%20Earnings]
[5] Fairfax Financial posts profit jump amid premium and investment gains [https://www.insurancebusinessmag.com/us/news/breaking-news/fairfax-financial-posts-profit-jump-amid-premium-and-investment-gains-54712.aspx]