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The Capital Group U.S. Equity Fund (Canada) is modelled on the firm’s oldest portfolio, the U.S.-based Investment Company of America, launched in 1933, which boasts a strong track record of performance (it’s not available to Canadian investors). Like all Capital Group funds, the U.S. Equity Fund is managed using a multi-manager approach, divided into different sleeves that are managed independently by managers of different backgrounds and styles. A portion of the fund is also made up of the top picks from the firm’s analyst teams. The result is a style-agnostic portfolio.
Overseeing the fund is the firm’s Portfolio Coordinating Group, which monitors it in real time and is responsible for setting the manager mix, based on their outlook. With the top-down overview to set strategy, the security selection is very much a bottom up process, resulting in a sector mix much different than the fund’s benchmark index. Of the 70 names in the portfolio, the top 10 comprise just over a third of the fund.
As of April 30, top holdings included Microsoft Corp. (NSD: MSFT), Facebook Inc. (NSD: FB), Amazon.com Inc. (NSD: AMZN), Broadcom Inc. (NSD: AVGO), and Abbot Laboratories (NYSE: ABT).
The portfolio has a bit of a growth tilt, with an overweight to technology and healthcare. Despite this, valuation levels are roughly in line with the broader market.
The managers take a longer-term outlook to investing, which is reflected by their very modest 23% average annual portfolio turnover. Capital Group is well known for its high level of manager co-investment in the funds. Nearly all the firm’s managers had more than $1 million invested in their mandates, aligning their interests with their investors.
Costs are very reasonable, with an MER of 1.96%, which is well below the category average.
Like most equity funds, this one took a hit in the March market meltdown. However, it has since rallied, with a 3-month return of 6.3% compared with 3.5% for the U.S. Equity category average. Year to date to April 30, the fund is just a hair below breakeven at -0.20% compared with -2.5% for the category average.
Given the well-staffed management team, the disciplined investment process, the alignment of manager interests with investors, and the long-term track record of the firm and the fund, I remain confident performance will normalize in coming quarters, with index-like returns or better.
Capital Group U.S. Equity Fund (Canada)
Fund company: Capital International Asset Management
Fund type: U.S. Equity
FundGrade: C (April)
Style: Large-Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Chris Buchbinder, Barry Crosthwaite, Mark Hickey since Jan. 2014
MER: 1.96%
Fund code: CIF847 (Front-end load); CIF827 (Fee-based)
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
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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. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.
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