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Fidelity Canadian Disciplined Equity Fund takes sector-neutral approach
4/25/2017 10:36:14 AM
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By Dave Paterson  | Wednesday, March 01, 2017


 

The Fidelity Canadian Disciplined Equity Fund takes something of an offbeat approach to investing in the Canadian market in that it is managed using a sector-neutral approach. That means it strives to have the same sector exposure as its benchmark, the S&P/TSX Composite Index. With the sector mix taken care of, it is then the manager’s ability to find good stocks that will be the key driver of return.

In building the portfolio Andrew Marchese, the fund manager, relies heavily on Fidelity’s team of analysts covering the Canadian market. He tends to like stocks that have a history of delivering above-average earnings growth, and strong cash flow generation that are trading at a valuation level they believe is reasonable. The fund can invest in companies of any size, but it tends to heavily favour large-cap names, which comprise the bulk of the portfolio.

Not surprisingly, as of Dec. 31, the portfolio held many of the names found in the S&P/TSX Composite Index such as Royal Bank of Canada (TSX: RY), Toronto-Dominion Bank (TSX: TD), Suncor Energy Inc. (TSX: SU), Canadian National Railway Co. (TSX: CNR), and Enberidge Inc. (TSX: ENB). The portfolio is fairly concentrated, holding only 68 names, and with the top 10 making up 49% of the fund value. Somewhat surprisingly, the fund has no exposure to some index heavyweights, including Bank of Nova Scotia, Bank of Montreal, and BCE Inc.

Performance has been decent, with an average annual 5-year compounded rate of return of 8.4%, ending Jan. 31, compared with a 7.5% return for the index.

Volatility has been modestly lower than the broader market, and the fund has done a solid job in protecting capital. It has participated in about 80% of the upside movement of the market, yet only participated in about 70% of the drawdowns for the five years ending Jan. 31.

I have to admit I have mixed feelings about this fund. On one hand, the track record and process show that the managers have the ability to add some value through their stock-picking ability over time. On the other hand, the sector-neutral mandate effectively handcuffs the managers, preventing them from overweighting or underweighting certain sectors. This can be particularly troubling in a market that is as narrow as the S&P/TSX Composite Index.

Still, this can be a solid holding for medium-risk investors.

Fund company: Fidelity Investments
Fund type:
Canadian Equity
FundGrade™ Rating: C (January 2017)
Style: Large Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Andrew Marchese since March 2009
MER: 2.28%
Fund code: FID224 (Front-end load)
Minimum investment: $500

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Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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