We recommend Beutel Goodman Canadian Equity Fund for both growth and income. In general, we find the fund suitable for a conservative investor who can tolerate medium investment risk. It replaces PH&N Canadian Equity Fund on our recommended list of the best Canadian equity mutual funds.
We’ve added Beutel Goodman Canadian Equity Fund (Fund code: BTG770 (FE)) to our recommended list of best Canadian mutual funds. It replaces PH&N Canadian Equity Fund (Fund code: PHN130 (NL)); however, the latter does remain on our broader list of the top-40 funds to own for long-term investment. We’ve done this as we believe Beutel Goodman Canadian Equity Fund to be the superior of the two funds.
Beutel Goodman Canadian Equity aims to grow your capital over the long term through the application of a highly disciplined value investing approach that emphasizes capital preservation and a focus on absolute return and risk. This is achieved through investing in a small number of carefully researched securities issued by Canadian companies.
Already, this sets Beutel Goodman Canadian Equity apart from its PH&N counterpart. Whereas Beutel Goodman typically invests in 20 to 45 securities, PH&N Canadian currently holds 130 stocks. This lets the managers of Beutel Goodman’s fund focus on their best investment ideas, while portfolio management at PH&N’s Canadian Equity Fund is weighed down with the task of monitoring what are arguably too many stocks.
This difference in management style may also explain why the Beutel fund has been such a superior performer over short and long time frames. In fact, these past 10 years the fund’s compound annual growth rate is 7.0 per cent, a top-quartile performance in the top Canadian equity mutual funds category.
PH&N Canadian Equity, on the other hand, has had an annualized return of 4.3 per cent over the past 10 years. This is a third-quartile performance in the Canadian equity mutual funds category. The average return for the category over this time period is 4.5 per cent.
For time frames of one, three and five years, PH&N Canadian Equity has performed better than it has over the 10-year period, producing second-quartile results. But Beutel Goodman Canadian Equity has performed better than PH&N over these periods, delivering top-quartile performances in the past three and five years. For the one-year period, it suffered a loss of just 0.8 per cent versus PH&N’s 3.3-per-cent loss.
On a year-by-year basis for the 10 years ended Dec. 31, 2014, the Beutel Goodman fund once again comes out on top. The fund has performed in the top half of the Canadian equity mutual funds category in seven of the 10 years. The PH&N fund, by contrast, has performed in the top half of the category in just five of the 10 years.
We still see investment merit in PH&N Canadian Equity. But we find the Beutel Goodman fund the superior offering. Beutel Goodman Canadian Equity Fund is a long-term buy if you seek growth and some income and you can tolerate medium investment risk.
Beutel Goodman Canadian Equity’s portfolio
The fund’s portfolio is generally well diversified, with the exception of its heavy weighting in the financial sector—at about 38.6 per cent at June 30. But such a high weighting in financials is not unusual for a Canadian equity fund these days.
The fund, however, has underweighted (in comparison to the S&P/TSX Composite Index) the volatile energy and materials sectors, which should appeal to conservative investors. The rest of the portfolio breaks down as follows: energy, 12.3 per cent; consumer discretionary, 11.5 per cent; telecommunications, 9.8 per cent; industrials, 8.4 per cent; small caps, 7.0 per cent; consumer staples, 5.4 per cent; materials, 3.7 per cent; technology, 1.7 per cent; and cash, 1.7 per cent.
The fund’s top holdings are also quite conservative. As of September 30, they were as follows: Royal Bank of Canada, 8.9 per cent; TD Bank, 8.8 per cent; Rogers Communications Inc., 6.7 per cent; Bank of Nova Scotia, 6.0 per cent; and Cenovus Energy Inc., 5.0 per cent. The management expense ratio is 1.37 per cent.
Buy for growth and income.
The MoneyLetter, MPL Communications Inc.
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