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A-GRADE SENTRY CONSERVATIVE BALANCED INCOME FUND
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DUE DILIGENCE
Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert  



By Dave Paterson  | Wednesday, October 08, 2014


The RBC North American Value Fund has proven to be a strong performer over the longer term, despite its $2.1 billion large-cap asset base. That’s mainly because the team of Stuart Kedwell and Doug Raymond manage the fund using a multi-stage portfolio construction process that incorporates both quantitative screening and fundamental, bottom-up analysis with overall portfolio allocation deriving from the rigorous stock selection process rather than an attempt to predict macroeconomic trends.

The first stage in their process is a series of quantitative screens that weed out the undesirable companies in their selection universe. Then they conduct a fundamental analysis on each of the companies as well as a series of scenario analyses, looking at a wide range of possible outcomes for each stock. Stocks are also evaluated using a 2 Factor Matrix Model that evaluates earnings projections relative to valuation. They are looking for companies that are attractively valued, are fundamentally sound, and offer above-average returns on capital.

The fund can invest up to 49% in non-Canadian stocks, and the managers have been increasing their allocation to U.S. stocks over the past year. At the end of September, 48% was invested in U.S. names compared with 40% in Canadian companies. This country allocation is a by-product of the stock selection process, rather than a macro call.

The fund’s cash position, currently at 11%, is determined by two main factors; the availability of quality opportunities and the team’s macro call on the markets. As a policy, half of the fund’s foreign currency exposure is hedged.

The portfolio tends to be fairly well diversified, holding more than 100 names, with the top 10 making up around 20% of the fund. The managers are active, with high levels of portfolio turnover.

Performance, particularly over the longer term, has been strong, posting a three-year gain of 16.4%, outpacing the S&P/TSX Composite, finishing in the upper half of the category. Shorter-term, however, performance has slid a bit, with a three month gain of 0.66%, trailing its peers. Volatility has trended lower than both the broader market and the Canadian-focused equity category average.

This mutual fund has been a very strong performer that has rewarded investors with above-average returns and below-average volatility for a number of years. In addition to the recent slip in performance, another thing I am watching closely with this fund is its level of assets. A year and a half ago, it had assets of $650 million, yet at the end of September, assets had risen to more than $2.1 billion. With the focus primarily on large-cap names and the ability to invest heavily in the U.S, capacity shouldn’t be a problem for some time.

All things considered, I still believe that this is a very solid Canadian equity fund that is expected to deliver above-average returns with below-average risk for some time.

Fund company: RBC Global Asset Management
Fund type: Canadian Focused Equity
Fundata FundGrade® Rating: B
Style: Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Excellent
TFSA suitability: Excellent
Manager: Stuart Kedwell since May 2005; Doug Raymond since May 2005
MER: 2.11%
Code: RBF554 (no-load)
Minimum investment: $500

See the Fundata Fund Snapshot for more details.

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 editor and 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

© 2014 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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