Fund in Focus: Dynamic Power American Growth Fund

High performance, actively managed, and volatile

Dynamic Power American Growth Fund is an aggressive, actively-managed, concentrated, high-growth equity fund, very much like the Dynamic Power Global Growth Fund, which has been on my Recommended List for many years. The key difference is this offering invests only in U.S. companies.

Noah Blackstein, the lead fund manager is very growth-focused, looking for companies that have the best growth prospects, strong earnings momentum, and a history of upside earnings surprises.

The managers also seem to downplay valuation numbers, as evidenced by the fund’s price-earnings ratio which clocked in at over 70 as recently as this February, more than three times the broader market. The price-to-book was listed at 14, more than four times the market. However, the underlying growth rates of the stocks in the portfolio are also substantially higher than the broader market, putting a different, more favourable, light on the simple raw valuation numbers.

With just 25 holdings, the fund is very concentrated. The top 10 names make up more than 50% of the fund. The fund is also concentrated in just three sectors: technology, which makes up nearly two thirds of the portfolio; consumer discretionary, which makes up 16%; and healthcare, at 12%.

As of March 31, top holdings included Service Now Inc. (NYSE: NOW), Zendesk Inc. (NYSE: ZEN), The Trade Desk Inc. (NASDAQ: TDD), Twilio Inc. (NYSE: TWO), and Palo Alto Networks Inc. (NYSE: PANW).

This is a very volatile fund, with 3-year average standard deviation of 19.8% significantly higher than the S&P 500 Composite. The manager is extremely active, with portfolio turnover that has averaged more than 281% (or an average four-month holding period for a stock).

One drawback is that the active style can generate significant capital gains, which can attract a significant tax bite. To help offset this, the fund is also available in a corporate class version.

Another potential drawback is higher trading costs, which for the past five years have averaged 0.27% annually. Returns have more than offset any additional trading costs, with 1-year return at 30.7% to April 30, and 5-year average annual compounded rate of return at 22.4%. As long as the fund is making money, trading costs will be a non-issue. But that could change if returns moderate or if the fund starts losing money, a strong possibility if market leadership returns to more quality- and value-focused names.

Because of this, I would not suggest that this fund be used as a core holding, nor would I suggest it for anyone who does not have a high tolerance for risk. But for those who are looking to juice up their portfolios and who are comfortable with some volatility, this is a great U.S. equity fund to consider.

Dynamic Power American Growth Fund
Fund company: Dynamic Funds
Fund type: U.S. Equity
FundGrade Rating: B (April)
Style: Large-Cap Growth
Risk level: High
Load status: Optional
RRSP/RRIF suitability: Fair
Manager: Noah Blackstein since July 1998
MER: 2.43%
Fund code: DYN004 (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.

Notes and Disclaimer

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.