Fund in Focus: Capital Group U.S. Equity Fund (Canada)

Manages risk but won’t shoot the lights out

Capital Group U.S. Equity Fund (Canada) has a modest four-year track record here in Canada, but it is modelled on U.S.-based Capital International’s oldest portfolio, the Investment Company of America, which was launched in 1933. The fund is managed with a multi-manager approach, whereby the portfolio is divided into different sleeves that are managed independently by managers of different backgrounds and styles. A portion of portfolio is also made up of top picks from the firm’s own analyst teams.

Because each sub-advisor uses their own unique, research-driven approach to stock selection, the result is a portfolio that tends to be somewhat style agnostic.

The firm’s Portfolio Coordinating Group is responsible for monitoring the portfolio in real time and sets the weight between the managers and analysts within the fund, based on their outlook of the investing environment.

The portfolio is often quite different from its benchmark. For example, at the end of June, it was overweight information technology, healthcare, and consumer discretionary and underweight real estate, utilities, and materials. It holds 172 names, with the top 10 making up 28% of the fund. Valuation metrics currently look about the same as the S&P 500.

Top holdings as of June 30 included Facebook Inc. (NSD: FB), Microsoft Inc. (NSD: MSFT), Abbott Laboratories (NYSE: ABT), Alphabet Inc. (NSD: GOOG), and Broadcom Inc. (NSD: AVGO).

The compensation structure for the portfolio is unique. Incentive bonuses are paid to the managers based on their rolling one-, three-, five-, and eight-year performance numbers, with more emphasis being placed on the longer-term numbers.

Performance has lagged recently, with a 3-year average annual compounded rate of return of 7.4% compared with a category average of 11.5%. But with a 3-year average standard deviation of 10.6, portfolio volatility has been lower than the category median at 11.3.

Costs are very reasonable, with an MER of 2.01% for the front-end units, which is below the category average. The lower fee hurdle will help in this category where outperformance is often very difficult.

Given the emphasis on risk management, I wouldn’t expect this fund to shoot the lights out, but I would expect it to deliver index-like or better returns with volatility levels that are slightly better than the broader market.

Capital Group U.S. Equity Fund (Canada)
Fund company: Capital Group Funds Canada
Fund type: U.S. Equity
FundGrade Rating: D (June)
Style: Large-Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Christopher Buchbinder; Barry Crosthwaite; Mark Hickey
MER: 2.03%
Fund code: CIF847 (Front-end units)
Minimum investment: $500

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.