The Beutel Goodman American Equity Fund continues its winning ways with index-beating performance and below-average volatility. The fund’s consistent value approach has made it regular top-quartile performer in annualized returns, contributing to its Fundata FundGrade® A-Grade standing again in July, as well as its award of the FundGrade A+ Rating for 2013. A year-to-date gain of 10.8% to July 31 put it among the top-10 performers in the U.S. Equity category.
U.S. equity management at Beutel Goodman is co-managed by Glenn Fortin and Rui Cardoso. Supported by the firm's equity team, they use a highly disciplined, bottom-up value approach for managing the fund, which places emphasis on capital preservation, with a focus on delivering absolute returns and managing risks. To achieve this, the managers look to identify high-quality, well-managed, dividend-paying companies that have a history of generating stable cash flows and have earned a level of return that is greater than the company’s cost of capital.
Given the value bias used, any company considered for inclusion in the portfolio must not only be undervalued but must also have the potential to increase its share price closer to its intrinsic value within a three-year period. When evaluating a company, the managers pay particular attention to the price-to-earnings, price-to-cash flow, and price-to-book ratios in the context of not only the company’s historical numbers, but also compared with the market and what the management believes to be the company’s sustainable earnings growth rate.
The result is a concentrated portfolio of U.S.-based large-cap companies that are leaders in their field. At the end of June, it held 27 stocks with the top 10 making up 53% of the fund.
The management team are patient in implementing their process, with portfolio turnover averaging 33% for the past five years. However, they are not afraid to use periods of heightened volatility as an opportunity to improve the quality of the portfolio. This happened in 2008 and again in the first half of 2012, when several new names were added to the portfolio, including Halliburton Co. (NYSE: HAL) and JP Morgan Chase (NYSE: JPM).
Performance has been decent, gaining an annualized return of 16.4% for the past five years to July 31, 2014, slightly trailing the S&P 500 Composite Index, but outpacing the category average. The fund also has decent downside protection, as it held up well in 2008, losing less than half of the index’s 23% drop. Volatility has been lower than the category average, but has matched the broader market.
Another positive is the relatively low MER of 1.47%, which is well below many of its competitors.
The risk reward characteristics have been eroding slightly over the past few quarters when compared with the peer group. This has been a bit of a concern. Still, on balance, this is a very solid U.S. equity offering, which I believe will deliver above-average returns with below-average risk over the long term.
Fund company: Beutel Goodman & Company
Fund type: U.S. Equity
Fundata FundGrade Rating: A; Fundata FundGrade A+ for 2013
Risk level: Medium
Load status: No Load
RRSP/RRIF suitability: Good
Manager: Beutel Goodman Management Team
Fund code: BTG774
Minimum investment: $5,000
See the Fundata Fund Snapshot for more details.
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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.
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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.