In managing the fund, O’Shaughnessy and his team start with the entire U.S.
equity universe of more than 3,300 names, and look for those with
above-average market capitalizations. They exclude REITs, MLPs, and utility
stocks from this screen, which brings the investible universe down to
approximately 700 securities.
Next, screens are run that measure a company’s financial strength, earnings
quality, and earnings growth. Those names that don’t meet the requirements
are eliminated. Finally, the managers rank the stocks based on shareholder
yield, which is a measure of a company’s dividend yield, share buybacks,
and debt reduction. The names with the best yield will typically make up
Top holdings recently included
Boeing Co. (NYSE: BA),
Ameriprise Financial Inc. (NYSE: AMP),
LyondellBasell Industries NV (NYSE: LYB),
Valero Energy Corp. (NYSE: VLO), and
McDonald’s Corp. (NYSE: MCD).
With the fund’s focus on value, the portfolio valuation numbers look
considerably more attractive than the S&P 500 on every metric. For
example, according to Morningstar, the fund trades at a recent
price-to-earnings ratio of 15 times, compared with the S&P 500
Composite Index, which trades at 20 times. Further, the dividend yield of
the portfolio is higher with the fund, providing a source of return to
Performance has been somewhat disappointing over the long term, but a good
portion of that can be attributed to the currency hedge that is in place.
For example, for the five years ending January 31, the fund delivered an
average annual compounded rate of return of nearly 13%, on a fully hedged
basis. Given the changes in currency back then, there may have been
approximately 600 basis points in performance resulting from the currency
move. Over the five-year period to Sept. 30, the annualized return was 14%.
The fund has done well recently as value names have begun to outperform
after several years of lagging. Year to date to Sept. 30, the fund has
returned 12.1%, double the benchmark, while the 12-month return is 21%,
some eight percentage points over the benchmark.
The fund recently rebalanced and offers higher levels of return on capital,
lower reliance on external financing, and more attractive valuations than
the benchmark and its peers. Also helping to make this a more attractive
option is the MER, which at 1.49%, is well below average. Given this, I
expect the fund to do well over the longer term, but would expect
volatility levels to remain higher than both the index and the peer group.
RBC O’Shaughnessy U.S. Value Fund
RBC Global Asset Management
FundGrade A+® Award: 2012, 2013
Medium to High
Jim O’Shaughnessy since 1997
RBF552 (No-load units)
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.
Notes and Disclaimer
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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.