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FundGrade A+® Award-winning Renaissance U.S. Equity Income Fund mitigates downside capture
10/23/2017 6:29:00 PM
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DUE DILIGENCE
Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert



By Dave Paterson  | Wednesday, July 26, 2017


 

 

The U.S. equity market has historically been one of the most difficult to outperform. Although the retail version of the Renaissance U.S. Equity Income Fund has only been around for three years, the longer-term institutional track record show this offering shows some promise for doing so on a risk-adjusted basis. Proof of that is in the fund’s monthly FundGrade™ A Grade for June and its FundGrade A+® Award for 2016.

Sub-advised by Kansas City, Missouri-based American Century Investments, the fund invests mainly in U.S. equities, but will typically have between 15% and 25% in convertible bonds. At the end of May, it was well below this, with just 7% invested in convertible securities.

The investment process is a bottom-up, value-focused one that looks to find good businesses that are out of favour for what the managers call “transitory” reasons. To be considered, a company must have a strong balance sheet, high quality assets, and defendable franchises. Valuation is a key consideration, but so too is the downside risk of any investment. Managers Phil Davidson, Michael Liss, and Kevin Toney of American Century will typically avoid “deep value” names, as they believe there is too much risk in a back from the brink or reinvention story.

Top portfolio holdings as of June 30 included Procter & Gamble Co. (NYSE: PG), Johnson & Johnson (NYSE: JNJ), iShares Russell 1000 Value Index ETF (NYSE: IWD), Total SA (NYSE: TOT), and Republic Services Inc. (NYSE: RSG).

The goal is to deliver a portfolio that has the potential to generate strong returns, with fewer day-to-day fluctuation than the market. To date, the managers have done that, with volatility numbers that are lower than the broader market. The compounded average annual rate of return for the three years ending June 30 is 15.39%, compared with the benchmark S&P 500 Total Return Index C$ at 17.02%. The fund has also done an excellent job at protecting capital, participating in only 74% of the downward movement of the markets for the past three years.

Absolute performance has lagged the S&P 500 Composite Index for the past three years, but the lower volatility has resulted in better risk-adjusted numbers. This isn’t a fund I would ever expect to shoot the lights out. But if you’re looking for a more conservative way to access U.S. equities, this may be a fund worth a deeper look.

Renaissance U.S. Equity Income Fund
Fund company:
CIBC Asset Management
Fund type:
U.S. Equity
FundGrade Rating: A (June)
FundGrade A+ Award: 2016
Style: Large Cap Value
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Phil Davidson since Sept. 2013; Michael Liss since Sept. 2013; Kevin Toney since Sept. 2013
MER: 2.21%
Fund code: ATL2486 (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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