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Fund update: Mackenzie U.S. Low Volatility Fund
4/24/2018 4:40:06 PM
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By Dave Paterson  | Wednesday, April 12, 2017


Low volatility funds have been rather popular with investors, and given the current market environment, I would expect that trend to continue. Mackenzie U.S. Low Volatility Fund is one of the newer offerings in the U.S. equity space.

Launched in April 2014, the fund is managed by Robert Schoen and Adrian Chan of Putnam Investments. It is substantially similar to a fund they run in the U.S. that was launched a year earlier.

There are a few interesting things that differentiate this fund from its peers. The first is that it is managed using a sector-neutral approach. Sectors must be kept +/-2% of the weights of the S&P 500 Composite Index. In comparison, many other low-volatility funds will look to invest in stocks that have the lowest volatility, irrespective of sectors.

The result is a portfolio that looks a lot different than the others in the category. For example, it has a 20% weight in technology, which has traditionally been one of the more volatile sectors in the U.S. It also has significantly less exposure to utilities, which are a mainstay in other low volatility portfolios.

As of March 31, top holdings included ExxonMobil Corp. (NYSE: XOM), Johnson & Johnson (NYSE: JNJ), Alphabet Inc. (NASDAQ; GOOG), Altria Group Inc. (NYSE: MO), and Cisco Systems Inc. (NASDAQ: CSCO).

Another differentiator is that the fund’s currency exposure is 50% hedged, while many the other low volatility options run unhedged.

A final difference is that the Mackenzie offering will use an option strategy to help manage volatility. In the option strategy, the managers write covered call options on 50% of the portfolios holdings, and with the proceeds, purchase protective puts on the full value of the portfolio. This strategy will certainly help to protect the downside, but it will also hurt the upside potential of the fund.

While there are only a couple of years of data on the fund, it has lived up to the low-volatility promise, and has been the least volatile of the U.S. equity low volatility mandates. However, it has also largely underperformed both the index and its peer group. For the year ending March 31, it posted a bottom-quartile 5.6%, while the S&P 500 was up 20%.

Looking ahead, I would expect the Mackenzie U.S. Low Volatility Fund to outperform in down markets because of the protection offered by the option strategy. However, in sharply rising markets, I would expect it to lag as some of the names in the portfolio are likely to be called away because of the call option strategy. The bigger question is whether the better downside protection will offset the potentially lower upside over the long term. At this stage, with only a couple of years of history available for the fund, I am unsure of the answer and remain cautious for the near term.

Mackenzie U.S. Low Volatility Fund
Fund company:
Mackenzie Investments
Fund type: U.S. Equity
FundGrade Rating: E (March)
Style: Large Cap Growth
Risk level: Low to Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Robert Schoen, Adrian Chan
MER: 2.37%
Fund code: MFC4749 (Front-end load)
Minimum investment: $500

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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