The S&P 500 Composite Index is one of the most difficult indices to
beat, which is why you’re usually better off using a low-cost, passive
strategy. In some cases however, a fund can offer something different,
making it an interesting way to access U.S. equities. The
Norrep US Dividend Plus Class is an example.
Manager Kamran Khan uses
a unique approach that incorporates a traditional long-only, bottom-up,
value-focused process, with a conservative option-writing strategy designed
to protect capital and generate income. He has built a concentrated
portfolio of U.S.-based companies that have strong fundamentals, good
earnings and price momentum, and that are trading at an attractive level.
Khan looks for companies of any size, but currently favours more small- and
mid-capitalization names. He prefers the small names because there are more
opportunities to add alpha compared with the large-cap space. He will
typically hold 25 to 30 stocks, with the sector mix being the result of the
available opportunities. Khan is somewhat active in his approach, and will
trade out of names based on conviction and valuation. Annual portfolio
turnover has been in the 70% to 90% range.
Top holdings as of July 31 included business services firm
Convergys Corp. (NYSE: CVG), healthcare plan provider
CVS Health Corp. (NYSE: CVS), sporting goods retailer
Dick’s Sporting Goods Inc. (NYSE: DKS), discount retailer
Dollar General Corp. (NYSE: DG), and chemical firm
Eastman Chemical Co. (NYSE: EMN).
The option-writing strategy is two-pronged. Cash-covered puts are written
on stocks the managers are interested in buying, but at a lower price.
Writing puts generates premium income, and if the puts are exercised, the
stock will usually be added to the portfolio as it is one the managers were
watching. Covered calls are written on stocks that are approaching full
valuation. This also creates premium income, and if a call is exercised, it
is likely to be on a stock they were planning to sell anyway.
I expect this fund to lag in a rising market but to hold up better than its
peers when things get rocky, making this an attractive option. I’m still likely
to favour a low-cost passive option for my U.S. equity exposure, but if
you’re looking for something different, this is one fund worth talking to
your advisor about.
Norrep US Dividend Plus Class
Medium - High
Kamran Khan since Aug. 2006
MER: 2.68% (Series A)
Fund code: (NRP602 – low load)
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
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.
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only and is not intended as personalized investment advice.