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Fund in focus: RBC O’Shaughnessy Canadian Equity Fund
3/20/2019 5:48:37 PM
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Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert

By Dave Paterson  | Wednesday, July 18, 2018


The RBC O’Shaughnessy Canadian Equity Fund is managed by Jim O’Shaughnessy using the proprietary methodology that he developed and laid out in his bestselling book, What Works on Wall Street. Essentially, he and his team screen the stock universe on several factors that historically have been found in stocks that outperform.

These factors include valuation, market cap, momentum, and return on invested capital, which includes dividends, share buybacks, and debt repayments. Stocks are scored on these factors, and then ranked from most attractive to least attractive. The portfolio is then built from the 150 top-rated names. The focus tends to be more on mid-cap names.

The fund targets a 20% weighting in U.S. stocks, and any currency exposure is typically fully hedged back to Canadian dollars. At the end of May, about 18% was invested in the U.S. This is not a sector-neutral fund, as it will be overweight and underweight sectors based on their relative attractiveness. At the end of June, the fund was underweight energy and telcos, while maintaining an overweight to financial services and basic materials.

As of May 31, top holdings included Sun Life Financial Inc. (TSX: SLF), Teck Resources Ltd. (TSX: TECK.B), Methanex Corp. (TSX: MX), Express Scripts Holding Co. (NASDAQ: ESRX), and Air Canada (TSX: AC.B).

Valuation numbers are very attractive, with the fund trading well below the index and peer group, and showing decent growth prospects. Performance over the past five years has been roughly in line with the category average, with an average annual compounded rate of return of 8.2%, compared with 9.3% from the S&P/TSX Composite.

Volatility has been roughly in line with the index and peer group, but the managers have done a decent job protecting capital in down markets of late. For the past five years, the fund has captured 90% of the upside, yet participated in only 60% of the downside.

There are three reasons to like this fund:

1. Cost – It has an MER of 1.54%, which is well below the category average.

2. Process – The disciplined, repeatable, and transparent stock selection process has worked over the long-term.

3. Portfolio positioning – It has a decided value tilt, and as market fundamentals begin to play a key role in driving share prices, this fund is likely to benefit.

While not my top pick, it is a Canadian-focused equity fund that is worth a look, particularly for do-it-yourself investors looking for Canadian equity exposure.

RBC O’Shaughnessy Canadian Equity Fund Series A
Fund company: RBC Global Asset Management
Fund type:
Canadian Focused Equity
FundGrade Rating: C (June 2018)
Style: Mid Cap Blend/Systematic
Risk level: Medium
Load status: No load
RRSP/RRIF suitability: Good
Manager: Jim O’Shaughnessy since 1997
MER: 1.54%
Fund code: RBF550 (No-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

© 2018 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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