To find companies that are likely to give the fund that extra kick, manager
Sri Iyer and his Systematic Strategies team at sub-advisor Guardian Capital, run the
Canadian equity universe through screens that analyze 31 different factors,
looking for positive rates of change. These factors focus on growth, payout
ratios, efficiency, valuation, and investor sentiment. Further, the team
also conducts a fundamental review to validate any of the potential buy
candidates to ensure the rating is appropriate.
The portfolio is well-diversified, holding around 60 names, with the top 10
making up just under 30% of the ETF. The fund invests in companies of any
size. Roughly 45% is invested in big cap names, with the balance invested
in small and mid-caps.
At the end of August, top holdings included
Royal Bank of Canada (TSX: RY),
Rogers Communications Inc. (TSX: RCI.B),
Exchange Income Corp. (TSX: EIF),
Boyd Group Income Fund (TSX: BYD.UN), and
Telus Corp. (TSX: T).
The sector mix is dramatically different than the broader Canadian market,
with an overweight in energy, financial services, and consumer cyclicals.
It is underweight basic materials, technology, and healthcare. Despite this
overweight to the higher yielding sectors, valuation metrics look more
attractive than the broader market and the peer group.
This positioning has led to underperformance in the short-term, but over
the long term, the fund has outpaced the broader S&P/TSX Composite
Index, delivering an average annual compounded rate of return of 9.5% for
the five years to Aug. 31, compared with 8.1% for the index. Volatility,
with a 3-year average standard deviation of 7.6%, has been in line with the
Going forward, the managers remain defensive. They are placing a greater
emphasis on companies that offer higher earnings and cash flow visibility,
and higher-than-average dividend yields. This would be expected to allow
for better downside protection if we see a large pullback in the market.
I like the process used by the management team. It has resulted in a
portfolio that I believe is better diversified than the broader Canadian
market. The drawback is its cost, with an MER of 0.79%, which is well above
the 0.06% MER of the
iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC). Even with this higher cost, I believe the ETF has the potential to
deliver index-like returns with better downside protection over the
Horizons Active Canadian Dividend ETF
Horizons AlphaPro Management
ETF, Canadian Dividend & Income Equity
B (August 2017)
All Cap Blend
Sri Iyer, Guardian Capital
Commissions may be payable on trades
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.
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only and is not intended as personalized investment advice.