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Fund in focus: RBC North American Value Fund
8/18/2018 12:07:06 PM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, July 25, 2018


 



Managed by the team of Stu Kedwell and Doug Raymond of RBC Global Asset Management, RBC North American Value Fund invests in a mix of Canadian and U.S. companies that are attractively valued, fundamentally sound, and that offer above-average returns on capital. Their disciplined investment process has paid off, as the fund is a multi-year Fundata FundGrade A+® Award winner.

The managers use a multi-stage portfolio construction process that incorporates both quantitative screening and fundamental, bottom-up analysis.

The first stage in their process is a series of quantitative screens that weed out the undesirable companies in their selection universe. The team then conducts a fundamental analysis on each of the companies along with a series of scenario analyses, looking at a wide range of possible outcomes for each stock. Stocks are also evaluated using a two-factor matrix model that evaluates earnings projections relative to valuation.

Top holdings as of the end of May included Toronto-Dominion Bank (TSX: TD), Bank of Nova Scotia (TSX: BNS), Royal Bank of Canada (TSX: RY), Brookfield Asset Management (TSX: BAM.A), and Suncor Energy Inc. (TSX: SU). Cash was at 4.7% of portfolio weight.

For the second quarter, the fund gained 4.9%, outpacing most of its peers, but trailed the S&P/TSX Composite’s 6.8% return. At present, portfolio valuations look a bit rich for a value fund. However, when you factor in the expected growth rates of the underlying holdings, it is much more reasonably valued. From a sector standpoint, the fund is overweight financials and energy, and is modestly underweight information technology and healthcare.

The managers concede that in absolute terms, stock valuations are high, but note that when compared with fixed income, they are reasonable. At this stage in the cycle, it will take strong earnings growth to propel the market higher, which explains the fund’s tilt towards higher growth sectors in the market.

This remains a strong pick for those looking for a mix of Canadian and U.S. equities for the long-term.

RBC North American Value Fund
Fund company:
RBC Global Asset Management
Fund type:
Canadian Focused Equity
FundGrade Rating: A (June)
FundGrade A+ Awards: 2012, 2013, 2017
Style: Large Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Excellent
Managers: Stuart Kedwell since May 2005; Doug Raymond since May 2005
MER: 1.97%
Fund code: RBF554 (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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