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As growth stocks led the performance sweeps over the past few years, Mackenzie U.S. All Cap Growth Fund has been one of the stronger U.S. equity funds, at least on an absolute basis. With a 3-year average annual compounded rate of return of 19.8% to Oct. 31, 2020, the fund, managed by a team led by Richard Bodzy of Putnam Investments, has outpaced both the index and the peer group.
The investment process is a blend of top-down thematic analysis combined with bottom-up, fundamental security selection. Looking for companies that have a high level of growth and an above-average duration of growth, the manager scouts for growing revenues, earnings or cash flows faster than the market, high free cash flow conversion, operating momentum, and a business/ industry where there is a high potential market.
The team then considers themes, such as the advent of 5G telecom and the “Internet of Things,” Amazon’s influence, digital marketing, personalized medicine, and the humanization of pets.
The next step is to find well-managed companies, whose managements have ownership interest, with strong organic growth in revenue, profit, and free cash flow, with balance sheet flexibility and a history of responsible capital allocation. While not strictly value managers, the Putnam team seeks a price for the growth potential and the industry.
Though the fund has an all-cap mandate, it tends for focus on the large-cap space, and the end portfolio has between 60 and 80 individual stocks. Given its thematic approach, it’s not surprising to see the fund is overweight in technology, consumer services, and healthcare names.
Top holdings at the end of October included Apple Inc., Amazon.com Inc., Alphabet Inc., Facebook Inc., and PayPal Holdings Inc.
Valuation levels are very high compared with the index and peer group, but this is somewhat offset by the higher-than-average forward-looking growth rates. Despite the very marked growth tilt, volatility has been only slightly above the index and peer group. Capital protection has been decent, with the fund showing a down capture ratio of 87% over the past three years and 97% over the past five years, according to Morningstar Research. Even in the volatility of the past six months, the fund held up surprisingly well, gaining 15.6%, outpacing both the index and the peer group.
While I don’t expect that the level of performance is sustainable going forward, this growth-focused fund is definitely worth a closer look.
Mackenzie U.S. All Cap Growth Fund
Fund company: Mackenzie Investments
Fund type: U.S. Equity
FundGrade: A (October)
FundGrade A+ Award: 2019
Style: Bottom-up growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Richard Bodzy since Sept 2014
MER: 2.54%
Fund code: MFC1537 (Front-end load); MFC7101 (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
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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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