Fund in Focus: Dynamic Power American Growth Class

A high performer, but volatile

Dynamic Power American Growth Class is managed using a process similar to its sister Dynamic Power Global Growth Class, with the key difference being its focus on U.S. equities. The fund holds a concentrated portfolio of 20 to 30 U.S., companies that veteran manager Noah Blackstein believes to have the best growth prospects, strongest earnings momentum, and a history of upside earnings surprises.

The portfolio has a high degree of sector concentration, with nearly 47% in information technology and another 30% in healthcare. The balance is split between consumer discretionary and financial services.

Make no mistake, this is a high-growth portfolio. Valuation levels are extreme when compared with the broader U.S. equity market. The fund’s price/earnings ratio recently was recently shown at more than 55 times earnings, compared with a P/E of about 18 for the S&P 500. The price-to-book value ratio is at more than 12 compared with a P/B of 3 for the index.

Valuations are undeniably high, but then so too is earnings growth. The underlying portfolio has been able to grow earnings at a pace that is more than double that of the broader equity markets.

The manager is very active, with the fund posting a 5-year average portfolio turnover of 300%. This has added approximately 27 basis points to the total cost of owning the fund, which shows an MER of 2.43%.

In return, though, performance numbers have been stellar, particularly in the short-term. The fund grew 32.4% in 2017, more than doubling the 13.8% rise in the S&P 500 in Canadian dollar terms. Longer-term numbers are still above average, but more in line with the peer group.

Like its global counterpart, this fund wins big, but also loses big, boasting one of the larger upside capture ratios as well as one of the biggest downside capture ratios. This is a volatile fund, with a standard deviation more than 50% higher than the benchmark. This volatility has hurt the fund’s risk-adjusted returns, as it trails both the index and peer group.

I like this fund for the long-term, but I am not sure it is appropriate now, given its overall valuation levels and concentrated portfolio. However, it would be a solid pick after a market selloff and would be expected to outperform both its peer group and the broader equity market.

Dynamic Power American Growth Class
Fund company: Dynamic Funds
Fund type: U.S. Equity
FundGrade: B (August)
Style: Mid Cap Growth
Risk level: High
Load status: Optional
RRSP/RRIF Suitability: Poor
Manager: Noah Blackstein since March 2002
MER: 2.43%
Fund code: DYN004 (front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and and 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.