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Fund in Focus: RBC QUBE Low Volatility U.S. Equity Fund
11/19/2018 7:46:03 PM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, September 05, 2018


 



Back in late 2016, low-volatility funds were all the rage, attracting significant inflows and generating above-average returns for investors. Fast forward a bit, and returns have moderated, but the funds continue to live up to the promise of lower volatility and better capital protection in down markets. Launched in November 2012, and managed by a team headed up by Bill Tilford, the FundGrade A+® Award winner RBC QUBE Low Volatility U.S. Equity Fund complements RBC’s low-volatility Global and Canadian Equity lineup.

The manager uses a very disciplined, rules-based quantitative investment process that aims to minimize the fluctuations of the portfolio while still providing strong returns. The process starts by rating and ranking each stock on a variety of fundamental criteria that are both forward- and backward-looking. The team then reviews a number of stability measures, which are also scored.

A risk forecast is generated for each stock, which is then used as an input in the manager’s portfolio optimization model. The portfolio is optimized twice – once using a more traditional approach and the second time using more predictive factors. The final step is a more fundamental review that is completed by the team.

The result is a large-cap-focused portfolio, holding around 110 names. Given the emphasis on low volatility, it is not surprising to see it significantly overweight in defensive sectors like utilities and consumer goods.

A drawback to this strategy is that investors have bid up the value of these sectors significantly, resulting in a portfolio that is bit more richly valued than the broader market. That will make it tough, although not impossible, to repeat the recent performance in absolute terms.

The fund will lag in rising markets, but is expected to outperform in falling ones. To date, it has. For example, on Aug. 24, 2015, the market fell 3.7%, while the fund was off 3.1%. On Sept. 1, the market was again off by 3.7%, yet the fund slipped only 2%.

And that highlights the appeal of this fund – not to outperform the market, but rather to earn decent returns, with less risk and lower volatility.

I believe that this fund can continue to do that, given the investment process used by the team. It can be a great way for more conservative investors to access core U.S. equities with a bit less risk. Just don’t expect to see double-digit returns from here on out.

RBC QUBE Low Volatility U.S. Equity Fund
Fund company:
RBC Global Asset Management
Fund type:
U.S. Equity
FundGrade Rating: B (July)
FundGrade A+ Awards: 2016, 2017
Style: Large Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Bill Tilford since November 2012
MER: 1.94%
Fund Code: RBF718 (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

© 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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