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

By Dave Paterson  | Wednesday, May 16, 2018

I have followed fund company Beutel Goodman closely for a few years now, and I remain a fan. Last year, I had the opportunity to sit down with members of their portfolio management team to learn about their process in more depth. Those meetings only reinforced my view on the firm and its funds. One fund we spoke at length about was the Beutel Goodman Canadian Equity Fund, a perennial top-quartile performer, consistently achieving a monthly FundGrade A Grade rating and winning the FundGrade A+® Award in 2015.

The fund holds a concentrated portfolio of Canadian stocks and is managed using BG’s bottom-up, fundamentally-driven, value-tilted investment approach. While lead managers Mark Thomson and Stephen Arpin favour large-cap companies that are leaders in their industry, they will consider small- and mid-cap names that show the potential of becoming industry leaders. This exposure is obtained by buying units of the highly-regarded Beutel Goodman Small Cap Fund.

In addition to trading at least 30% below their estimate of its worth, any company the managers consider for the portfolio must have recurring, dependable earnings, free cash flow, and competitive advantages in its industry. The company must also have the ability to close the valuation gap within three years.

The result is a concentrated portfolio of just over 70 names, with the top 10 making up more than half of the fund. It is overweight financial and consumer services names, and underweight industrial services and consumer goods. Portfolio turnover has been quite low, averaging well below 20% for the past five years.

Top holdings as of April 30 included Toronto-Dominion Bank (TSX: TD), Bank of Nova Scotia (TSX: BNS), Royal Bank of Canada (TSX: RY)  Rogers Communications Inc. (TSX: RCI.B), Magna International Inc. (TSX: MG), and, of course the Beutel Goodman Small Cap Fund.

The managers also have an interesting sell discipline. Once a holding hits its price target, they automatically sell one third of the holding and undertake an updated detailed review. If the review shows an increased price target is justified, they will hold the remaining shares. If it is not, they will immediately exit the position.

Performance, particularly over the long term, has been excellent, with the fund consistently outpacing the index. It posted a 3-year average annual compounded rate of return of 5.6% to April 30, with 5-year annualized return at 9.3% and 10-year at 6.5%. Volatility has been roughly in line with the broader market, with a 3-year average standard deviation of 8.2%, giving it a 6/10 Fundata volatility ranking. The fund has also tended to modestly outperform in falling markets.

On balance, this is an excellent core equity holding for most investors. Over the long term, I would expect it to continue to do what it has done in the past – deliver above-average returns with less volatility.

Beutel Goodman Canadian Equity Fund
Fund company:
Beutel Goodman & Company
Fund type:
Canadian Equity
FundGrade Rating: A
FundGrade A+ Award: 2015
Style: Large Cap Blend
Risk level: Medium
Load status: No-load/Front-end load
RRSP/RRIF suitability: Excellent
Managers: Mark Thomson since June 1999; Stephen Arpin since July 1994
MER: 1.39% (No-load units)
Fund code: BTG770 (No-load)
Minimum investment: $5,000

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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