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FundGrade A-rated Mackenzie Canadian Growth Fund has been a perennial first-quartile performer, garnering the annual FundGrade A+ Award for four consecutive years. Year-to-date to the end of April, it is up more than 15.7%, outpacing its peers.
The management team, led by Dina DeGeer, oversees a concentrated portfolio of 30 to 35 businesses of any size. They look for well-managed niche players with unique competitive advantages, a history of strong free cash-flow generation, and that are growing faster than the economy and their competition.
The team creates a valuation model based on free cash flow to help determine the estimated fair value for the company. A potential investment must be trading at a minimum of 10% below their estimate of fair value to ensure they don’t overpay for future growth.
Although the portfolio is concentrated, it is well-diversified, with exposure to most market sectors. With its growth tilt, valuation levels are well above the broader market. It is overweight current growth sectors such as financial services, healthcare, and consumer names, with no exposure to real estate or utilities, and a significant underweight in energy and materials.
Top holdings as of April 30 included Royal Bank of Canada (TSX: RY), Aon Plc (NYSE: AON), Accenture Plc (NYSE: ACN), CCL Industries Inc. (TSX: CCL.B), and Stantec Inc. (TSX: STN).
The managers are reasonably active, with a portfolio turnover that has averaged around 70% over the past five years. They can invest up to 49% in foreign stocks and are currently more than 45% invested abroad.
The forward-looking growth rate looks very positive, which makes the valuation levels more reasonable. Given the growth tilt, the fund has been more volatile than the index or peer group with an average 3-year standard deviation of 9%. However, the absolute level of outperformance has more than offset this, resulting in better risk-adjusted returns.
The fund has had an excellent run since the 2008 financial crisis, with a 10-year average annual compounded rate of return of 11%, driven by the fund’s focus on growth sectors. As market leadership returns more towards the quality- and value-focused names, I would expect performance to moderate somewhat. I don’t envision a severe correction, but rather a period of underperformance relative to more value-type funds.
Bottom line, if you have held this fund for any length of time, you will likely want to take some profits and rebalance your holdings back to your target mix. Despite my expectation of more moderate performance ahead, this fund remains an excellent growth-focused offering for the long-term and can be a nice addition to a diversified portfolio.
Mackenzie Canadian Growth Fund
Fund company: Mackenzie Investments
Fund Type: Canadian Focused Equity
FundGrade Rating: A (April)
FundGrade A+ Awards: 2015, 2016, 2017, 2018
Style: Large-Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Dina DeGeer since August 1995; David Arpin since January 2013
MER: 2.46%
Fund code: MFC650 (Front-end units)
Minimum investment: $500
Learn more about the Fundata Prospectus Risk Indices.
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
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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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