Buy Fidelity Canadian Opportunities

Fidelity Canadian Opportunities is a buy for above-average long-term growth potential. It joins out Top 40 list in the Aggressive Canadian Stock Funds category.

We’ve added Fidelity Canadian Opportunities Fund (Fund code: FID215 (FE)) to the Aggressive Canadian Stock Funds category of our Mutual Fund Planning Guide. It replaces Conservative-rated Franklin Bissett Canadian Equity Fund, which we have removed from the Guide and recommend you sell (see below).

Fidelity Canadian Opportunities Fund aims to achieve long-term capital growth by investing in equity securities of Canadian companies. Though its prospectus permits it to invest in companies of any size, it typically tends to focus on small to medium companies. Plus, it may choose to invest up to 10 per cent of its assets at the time of purchase in the securities of private companies.

Fund takes a contrarian approach

The fund pursues a growth/value investment style that aims to identify value in out-of-favour stocks. It focuses on a company’s fundamentals and invests in shares that trade at prices that reflect attractive valuations based on its assessment of a company’s potential for growth and earnings. Other factors it may consider include a company’s industry conditions, market and economic conditions, and the potential public offering or acquisition price in the case of private companies.

The fund’s current portfolio manager is Hugo Lavallée, who has managed the fund since 2008. Identifying himself as a contrarian investor, Mr. Lavallée has led the fund to a top-quartile performance in the Canadian equity category in each of the past one-, three-, five- and 10-year periods. On a year-by-year basis, it has performed in the top half of the category in seven of the past 10 years.

The fund’s management expense ratio is 2.27 per cent.

Currently, Mr. Lavallée has 92.7 per cent of the fund’s assets invested in Canadian equities, 6.7 per cent in foreign equities and 0.7 per cent in other investments.

The fund is well diversified by industry sector, with no single sector accounting for more than 20 per cent of the portfolio. Its current sector allocation is as follows: consumer discretionary, 19.7 per cent; financials, 14.5 per cent; materials, 13.2 per cent; utilities, 10.9 per cent; technology, 9.9 per cent; industrials, 9.8 per cent; consumer staples, 9.2 per cent; real estate, 4.8 per cent; communication services, 3.9 per cent; and energy, 3.0 per cent.

The fund’s top-10 holdings, which comprise 42.2 per cent of the portfolio, are Dollarama (consumer discretionary), Brookfield Renewable Partners (utilities), Alimentation Couche-Tard (consumer staples), Quebecor Inc. (communication services), Franco Nevada (materials), Hydro One (utilities), Restaurant Brands International (consumer discretionary), Wheaton Precious Metals (materials), CGI Inc. (technology) and Constellation Software (technology).

When COVID-19 hit, Mr. Lavallée thought the market backdrop that resulted was supportive of active investing. He found interesting investment ideas in out-of-favour consumer sectors, which resulted in larger-than-benchmark allocations to the consumer discretionary and consumer staples sectors. This type of active investing may also do well in coming months, as market volatility should continue to present investment opportunities.

Fidelity Canadian Opportunities Fund is a buy for investors who want above-average long-term growth potential and who can tolerate the higher risk that smaller companies often entail.

Sell Franklin Bissett Canadian Equity

We’ve removed Franklin Bissett Canadian Equity Fund from our Mutual Fund Planning Guide and now rate it a sell. That’s because we think you can find better Canadian equity offerings elsewhere such as among our current list of Very Conservative and Conservative Canadian Stock Funds.

Bissett Canadian Equity Fund performed relatively well in the early years of the last decade. But relative performance began to slip in the middle years of the decade and deteriorated further in the final years. In fact, the fund performed in the bottom half of the Canadian equity category in each of the past four years. And this performance has contributed to fourth-quartile returns in each of the past one-, three- and five-year periods.

Rather than wait for a turnaround in the fund’s relative performance, less-patient investors who don’t face immediate tax consequences from a sale may want to look elsewhere. Sell.

This is an edited version of an article that was originally published for subscribers in the January 15, 2021, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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