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The Beutel Goodman American Equity Fund has consistently been one of the best U.S. equity funds around. It’s a multi-year FundGrade A+® Award winner, and it is managed using a highly disciplined, bottom-up value approach that places emphasis on capital preservation, with a focus on delivering absolute returns and managing risks.
Lead managers Rui Cardoso and Glenn Fortin look for high quality, well-managed companies that have a history of generating stable cash flows and that have earned a level of return that is greater than the company’s cost of capital.
Given the value bias, any company considered for inclusion in the portfolio must not only be undervalued but must also have the potential to grow its share price closer to its intrinsic value within a three-year period.
When evaluating a company, Beutel Goodman’s managers pay attention to key fundamental metrics such as the price-to-earnings, price-to-cash flow, and price-to-book ratios in the context of not only the company’s historical numbers but also compared with the market and what the management believes to be the company’s sustainable earnings growth rate.
The portfolio is concentrated, holding U.S.-based large-cap companies that are leaders in their field. As of Oct. 31, the fund held less than 30 stocks, with the top 10 making up nearly 51% the portfolio. Top holdings included communications giant Verizon Communications Inc. (NYSE: VZ), medical distribution firm Amerisource Bergen Corp. (NYSE: ABC), software company Oracle Corp. (NYSE: ORCL), bank American Express Co. (NYSE: AXP), and advertising firm Omnicom Group Inc. (NYSE: OMC).
The managers are patient in implementing their process, with portfolio turnover averaging roughly 30% for the past five years. However, they are not afraid to use periods of heightened volatility as an opportunity to improve the quality of the portfolio. This happened in 2008 and again in the first half of 2012 when several new names were added to the portfolio.
Performance, particularly over the long-term has been excellent with the fund delivering a 5-year average annual compounded rate of return of 14.6% to Oct. 31, slightly trailing the S&P 500 but outpacing the category average.
The fund also has a history of decent downside protection, holding up well in 2008, for example, with a loss of less than half the index’s 23% decline. It has a down capture ratio of 77% over the past three years. Volatility has been lower than the category average but was roughly in line with the broader market.
In most cases, I would suggest investors use a low-cost passive option for their U.S. equity exposure. However, this is one of the few actively managed U.S. equity funds worth taking a look at and remains one of my favourites.
Beutel Goodman American Equity Fund
Fund company: Beutel Goodman & Company
Fund type: U.S. Equity
FundGrade Rating: B (October)
FundGrade A+ Awards: 2013-2017
Style: Large Cap Value
Risk level: Medium
Load status: No-Load/Fee-based
RRSP/RRIF suitability: Excellent
Managers: Glenn Fortin since June 1997; Rui Cardoso since June 2013
MER: 1.50% (No-load)
Fund code: BTG774
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.
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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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