Fund in Focus: Dynamic Power American Growth Fund

High-risk fund delivers first-quartile performance

I reviewed the Dynamic Power American Growth Fund just a few months ago when markets were riding high and growth stocks were outperforming not only value stocks but also the broader equity markets. This hyper-growth fund was in its element back then, outpacing the index and peer group. Then came the COVID-19 pandemic, the crude oil crash, and the March market meltdown. Equity funds did not fare well in general. But some did much, much better than the category averages and the broader equity indexes. This FundGrade A-grade offering from Dynamic is one of them, with first-quartile performance across all time periods ending March 31.

Managed by Vice President & Senior Portfolio Manager at 1832 Asset Management, Noah Blackstein, using a bottom-up approach, Dynamic Power American Growth is, as its name indicates, a growth-focused mandate highly concentrated in its sector mix and number of holdings. At Feb. 29, the fund held 56% in technology, 23% in healthcare, and 15% in consumer discretionary stocks. It was underweight communication services at 3.2%, with the balance in cash.

The fund held 22 stocks, with very few being what I would consider to be household names. Top holdings included cloud-based business communications provider Ring Central, cloud computing company ServiceNow, biopharmaceutical firm Vertex Pharmaceuticals, manufacturer of glucose monitoring devices Dexcom Inc., and merchant financial services firm Square Inc. The top 10 holdings make up roughly half of the portfolio.

Mr. Blackstein is an active manager, with portfolio turnover averaging more than 200%. In other words, he turns the portfolio over roughly four times per year. But it seems to have worked, generating a first-quartile 10-year average annual compounded rate of return of 18.4% to March 31. Even in the disastrous first quarter of 2020, the fund fell only 1.1%, compared with a 16% drop for the U.S. Equity category average.

While I’ve been impressed with the results, we do need to put them into context. First, Mr. Blackstein makes very concentrated bets in growth sectors that have paid off handsomely in the growth-fueled market that has prevailed over the past decade. His considerable skill as an active manager will now be supremely tested as risk-aversion dominates and value becomes the watchword over the coming year.

Another concern with the fund is its volatility, which at a 3-year average standard deviation of 22 as of March 31 has vastly exceeded the category median of 13.3. The fund has also experienced significant drawdowns, with a maximum -19.2% drawdown compared to -16.5% for the category as of March 31. This is a win big, lose big fund.

It’s not core holding for most investors, but rather a potentially strong return enhancer for those who have the stomach to withstand the volatility. I would be cautious about taking on a new position in the current environment unless you are comfortable with the fund’s history of volatility.

Dynamic Power American Growth Fund
Fund company: Dynamic Funds
Fund type: U.S. Equity
FundGrade: A (March)
Style: Large-Cap Growth
Risk level: Medium to high
Load status: Optional
RRSP/RRIF suitability: Fair
Manager: Noah Blackstein since July 1998
MER: 2.43%
Fund code: DYN004 (Front-end load); DYN604 (Low 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. 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.