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FundGrade A+ winner RBC North American Value Fund delivers gains with lower volatility
7/18/2018 1:55:28 PM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, January 31, 2018


 



The Award-winning RBC North American Value Fund is a Canadian-focused fund with major Canadian banks as four of its top five holdings. As a result, its average market capitalization tends to be significantly higher than many other Canadian equity funds. Its value focus and low volatility have contributed to its monthly FundGrade A Grade ratings, and its 2017 FundGrade A+® Award for performance excellence. The fund has also garnered two previous A+ Awards, in 2012 and 2013.

The fund finished 2017 with a first-quartile return of 11.18%, outpacing both the S&P/TSX Composite Index, and the category average. Managers Stuart Kedwell, Doug Raymond, and David Tron keep the portfolio reasonably defensive, carrying a higher level of cash, combined with an overweighting in reasonably-valued financial, energy, and technology holdings. At the end of December, the fund held 7% in cash, 54% in Canadian equity, and 36% in U.S. equity.

Top holdings recently included Royal Bank of Canada (TSX: RY), Bank of Nova Scotia (TSX: BNS), Toronto-Dominion Bank (TSX: TD), Brookfield Asset Management Inc. (TSX: BAM.A), and Bank of Montreal (TSX: BMO).

It is also overweight technology, with exposure to many industry heavyweights including Alphabet Inc. (NASDAQ: GOOGL), Apple Inc. (NASDAQ: AAPL), and Microsoft Corp. (NASDAQ: MSFT). Value names made a comeback in the past few months, helping buoy fund performance in the fourth quarter.

Longer-term return numbers also look decent, with the fund delivering a 5-year average annual compounded rate of return of 11.6%, while the S&P/TSX Composite gained 8.6%. The U.S. holdings contributed positively to this return, as the S&P 500 gained 15.3% in Canadian dollar terms.

While the returns have been strong, what impresses me more is the lower volatility and stronger downside protection. With 3-year average standard deviation of 7.3%, volatility has been lower than both the index and peer group. Capital protection has also been excellent, with the fund capturing less than half of the market drawdowns. Portfolio valuation remains attractive compared with its peers.

Looking ahead, I expect this fund to continue to deliver average or better returns, with lower volatility and stronger capital protection in down markets. During periods when the market rewards higher beta names, this fund may lag. However, as the markets return to a more normalized environment, I expect the fund to outperform.

RBC North American Value Fund
Fund company:
RBC Global Asset Management
Fund type:
Canadian Focused Equity
FundGrade: A (December 2017) 
FundGrade A+ Awards: 2012, 2013, 2017
Style: Large Cap Blend
Prospectus Risk rating: Low to Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Stu Kedwell since May 2005; Doug Raymond since May 2005; David Tron
MER: 1.97% (front end units)
Fund code: RBF766 (Front-end load)
Minimum investment: $500

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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