Fund in Focus: Dynamic Blue Chip Equity Fund

Looking for best-in-class companies

Veteran Dynamic Funds manager Dana Love and his team at Dynamic Blue Chip Equity Fund invest in a concentrated portfolio of “best-in-class” companies located around the world. The investment process is very much a bottom-up approach that first looks to find well-managed businesses that can generate sustainable free cash flow, have high barriers to entry, and are trading below what the manager believes it to be worth.

The resulting portfolio has a growth tilt, with valuation levels that are higher than the index and the peer group. However, the earnings growth and cash flow generation tend to run higher, helping to justify this higher valuation.

The fund holds 35 names, with the top 10 making up more than 44% of the portfolio. While the fund has a large-cap focus, the manager will invest in small- and medium-sized companies where the opportunities are present. It does not have any geographic constraints and can invest anywhere. At the end of July, the fund held 35% in U.S. equities and 56% in foreign.

As of July 31, top holdings included Progressive Corp., Microsoft Corp., Techtronic Industries Co. Ltd., Koninklijke Philips NV, and LVMH Moët Hennessy Louis Vuitton SA.

Despite its “Blue Chip” moniker, not all the holdings are exactly household names. While some name brands are instantly recognizable, such as Microsoft and Visa, the fund also holds many lesser-known companies, such as Santen Pharmaceutical Co., Ltd., NEXON Co. Ltd., and DBS Group Holdings Ltd.

The manager takes a longer-term view, with very modest levels of portfolio turnover. The fund is overweight consumer discretionary, software & services, insurance, and industrials. It is underweight banks, technology hardware, and metals and minerals.

Short-term performance outpaced the peer group in 2018 and is on pace to do so again this year. In the past three years to July 31, it has delivered an average annual compounded rate of return of 10.8%, compared with the category average of 8.0%. With a 3-year average standard deviation of 9.9% the fund has average volatility for this category.

Most of the fund’s recent gains can be attributed to its higher exposure to growth names, and I expect to see performance moderate slightly as more value-focused names regain market leadership, with the fund producing solid risk-adjusted returns for investors.

This can be a core global equity offering.

Dynamic Blue Chip Equity Fund
Fund company: Dynamic Funds
Fund type: Global Equity
FundGrade: B
Style: Large-Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Dana Love since December 2015; Vishal Patel since December 2015
MER: 2.43%
Fund Code: DYN204 (Front-end load)
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.