Fund in Focus: Steadyhand Equity Fund

The "un-dexing" approach

It’s been said that to beat the index, you can’t be the index. This is the overriding philosophy of Vancouver-based Steadyhand, with their “un-dexing” approach to investing. And as a result, Steadyhand funds tend to be concentrated, with offerings that look nothing like their benchmarks. The Steadyhand Equity Fund is their North American equity offering, and is managed by Gord O’Reilly of Toronto based CGOV Asset Management, which joined up with Fiera Capital this past May. The fund’s outperformance has garnered it the monthly FundGrade A grade, as well as multiple annual FundGrade A+ Awards.

The portfolio consists of only 20 to 25 holdings, constituting the firm’s “best ideas.” This approach, for which CGOV is known, creates a unique “competition for capital” within the portfolio. Before a new idea is included in the portfolio, an existing holding must be sold to make room. This forces the managers to remain objective on the portfolio holdings at all times.

The managers first screen the investment universe on liquidity and quality factors, and then drill down using different criteria, including management quality, fundamentals, and valuation.

Valuation is key, and to be considered, a stock must be trading well below what the managers believe it to be worth, providing investors with a strong margin of safety.

The result is a portfolio made up of high-quality companies that have sustainable business models, a growing and sustainable dividend yield, and excellent management teams with a history of generating strong levels of free cash flow.

While the portfolio is built on a bottom-up basis, there are controls in place to ensure proper diversification. For example, the fund must be invested in at least eight of the Global Industry Classification Standard (GICS) sectors, and the maximum weight in any sector is capped at 30%.

Performance has been excellent over both the long and short terms. Its 5-year average annual compounded rate of return to Aug. 31 is 12.0%, outpacing both the index and peer group. Volatility has been below average, and the fund has done an excellent job protecting capital in down markets.

As with other Steadyhand funds, the costs are rock bottom, with an MER of 1.42%. One drawback is that the concentrated, differentiated portfolio could see periods where performance differs dramatically from the index or peer group.

Still, the Steadyhand Equity Fund is an excellent fund that could be a solid core equity holding for most investors.

Steadyhand Equity Fund
Fund company: Steadyhand Investment Funds
Fund type: Canadian Focused Equity
FundGrade: A (August)
FundGrade A+ Awards: 2012, 2013, 2014, 2016, 2017
Style: Large Cap Growth
Risk level: Medium
Load status: No load
RRSP/RRIF suitability: Excellent
Manager: Gordon O’Reilly since Feb. 2007
MER: 1.42%
Fund code: SIF130 (No load)
Minimum investment: $10,000

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

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.