Launched in April 2014, the fund is managed by
of Putnam Investments. It is substantially similar to a fund they run in
the U.S. that was launched a year earlier.
There are a few interesting things that differentiate this fund from its
peers. The first is that it is managed using a sector-neutral approach.
Sectors must be kept +/-2% of the weights of the S&P 500 Composite
Index. In comparison, many other low-volatility funds will look to invest
in stocks that have the lowest volatility, irrespective of sectors.
The result is a portfolio that looks a lot different than the others in the
category. For example, it has a 20% weight in technology, which has
traditionally been one of the more volatile sectors in the U.S. It also has
significantly less exposure to utilities, which are a mainstay in other low
As of March 31, top holdings included
ExxonMobil Corp. (NYSE: XOM),
Johnson & Johnson (NYSE: JNJ),
Alphabet Inc. (NASDAQ; GOOG),
Altria Group Inc. (NYSE: MO), and
Cisco Systems Inc. (NASDAQ: CSCO).
Another differentiator is that the fund’s currency exposure is 50% hedged,
while many the other low volatility options run unhedged.
A final difference is that the Mackenzie offering will use an option
strategy to help manage volatility. In the option strategy, the managers
write covered call options on 50% of the portfolios holdings, and with the
proceeds, purchase protective puts on the full value of the portfolio. This
strategy will certainly help to protect the downside, but it will also hurt
the upside potential of the fund.
While there are only a couple of years of data on the fund, it has lived up
to the low-volatility promise, and has been the least volatile of the U.S.
equity low volatility mandates. However, it has also largely underperformed
both the index and its peer group. For the year ending March 31, it posted
a bottom-quartile 5.6%, while the S&P 500 was up 20%.
Looking ahead, I would expect the Mackenzie U.S. Low Volatility Fund to
outperform in down markets because of the protection offered by the option
strategy. However, in sharply rising markets, I would expect it to lag as
some of the names in the portfolio are likely to be called away because of
the call option strategy. The bigger question is whether the better
downside protection will offset the potentially lower upside over the long
term. At this stage, with only a couple of years of history available for
the fund, I am unsure of the answer and remain cautious for the near term.
Mackenzie U.S. Low Volatility Fund
Large Cap Growth
Low to Medium
MFC4749 (Front-end load)
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
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
© 2017 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.