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Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert  

By Dave Paterson  | Tuesday, October 29, 2013

Fund company: Mackenzie Financial Corporation
Fund type: Canadian Focused Equity
Fundata FundGrade® Rating: B
Style: Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Fair
TFSA suitability: Fair
Manager: Paul Musson since January 2009; Matt Moody since July 2012
MER: 2.50%
Code: MFC 083 (front end)
Minimum investment: $500

See the Fund Library FundCard™ for more details.

Analysis: Like all of Mackenzie’s Ivy-branded funds, the focus of this one is on capital preservation. To do this, managers Paul Musson and Matt Moody invest in only in high-quality, large-cap companies. To build the portfolio, the mangers use a fundamentally-driven, bottom-up process with no fixed sector allocations, allowing them significant freedom to build a concentrated and very conservative portfolio. The top 10 holdings make up 45% of the fund.

With its focus on capital preservation, it is not surprising to see the fund heavily weighted in the more defensive financial- and consumer-focused sectors. Financials make up 25%, while the consumer-focused holdings represent 37%. It is underweight in both energy and materials, which is not surprising, given the lack of earnings visibility with most companies in those sectors. The focus is on Canada, where more than half of its companies trade, followed by the U.S., which makes up 17% of the portfolio, with the balance in Europe.

The longer-term performance has been less than stellar, with an annualized 10- year compounded annual rate of return of just 4.2% as of September 30, compared with an 8.2% gain for the S&P/TSX Composite Index during the same period. But where this fund really earns its stripes is in periods of extreme market volatility. For example, in 2008, the market was down 33%, yet this fund was down by less than half of that. In 2011, the market fell by 8.7%, yet this fund was up 1.5%.

It offers one of the lowest downside capture ratios of any Canadian equity fund available today. Unfortunately the downside to this is that it also offers one of the lowest upside capture ratios. When markets are moving sharply higher, this fund tends to leave a lot of money on the table. For example, in 2009 the market shot higher by 35%, yet this fund gained only 4.9%.

This is a great fund to own in highly volatile time and when you expect that markets will fall. However, looking at the current environment, while I do expect higher than normal volatility, I don’t think it will be high enough to warrant this fund as a core holding for most investors. But it could be a great way for very conservative investors looking for a relatively low risk way to dip their toes into the equity markets. Those with average or higher risk tolerances are likely to want to look elsewhere.

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 and Mutual Fund and ETF Update 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

© 2013 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.

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