Equity fund has consistently outperformed

Beutel Goodman Canadian Equity Fund hasn’t always outperformed its peers and the Canadian stock market, but it has certainly done so most of the time. It has outperformed its peer average and the Canadian market over the past 10 years and its 5.7-per-cent annualized return over this time ranks in the top four per cent of the Canadian equity mutual fund category.

Equity_FundSo far this year, managed Canadian equity mutual funds have underperformed the Canadian stock market. The average Canadian equity fund’s total return is 2.0 per cent, while that of the S&P/TSX Composite Index is 2.3 per cent. Beutel Goodman Canadian Equity Fund, meanwhile, has underperformed both the market and the index, with a return of 1.7 per cent. That’s okay, because the fund has to underperform sometime. Most of the time, it has soundly beaten its competitors and the market.

Beutel Goodman Canadian Equity Fund (Class D fund code: BTG770) seeks long-term capital appreciation mostly through investments in common shares and other equity securities of established Canadian issuers. To accomplish this objective, the fund tries to buy the best value in the stock market regardless of what sector the issuer operates in.

Beutel Goodman follows a fundamental bottom-up value investment philosophy grounded in a disciplined proprietary research process, with a focus on capital preservation, absolute risk reduction and downside protection in declining markets.

Indeed, the fund has done a commendable job of preserving capital in bad stock-market years. In 2008, 2011 and 2015, the iShares Core S&P/TSX Composite Index Exchange Traded Fund’s net asset value declined 33.0, 8.9, and 8.4 per cent, respectively. In each of those same years, the average Canadian equity fund lost 34.6, 10.5 and 6.1 per cent, respectively. But Beutel Goodman Canadian Equity lost just 22.9, 7.0 and 6.1 per cent, respectively, in those years.

How does Beutel Goodman go about finding stocks that suffer less in market downturns? The answer is, it directs its research efforts to identifying stocks that are undervalued in relation to the asset value or earnings power of the issuer. If earnings fall short of expectations, the firm believes the intrinsic value of the underlying assets of the issuer will provide important downside protection.

The fund’s investment portfolio, therefore, will usually display a price-to-earnings ratio and price-to-book-value ratio that are well below market averages.

Beutel Goodman’s investment approach has proven remarkably successful. These past 10 years, the fund’s compound annual growth rate is 5.7 per cent, versus 3.9 per cent for the S&P/TSX Composite Index and 3.2 per cent for the average fund in the Canadian equity fund category.

Beutel Goodman Canadian Equity is a core portfolio holding for investors who want long-term capital growth and can tolerate medium investment risk. Buy.

Beutel Goodman Canadian Equity ‘Fun’ facts

As noted above, Beutel Goodman Canadian Equity Fund has outperformed its peer average and the Canadian market over the past 10 years. Its 5.7-per-cent annualized return over this time ranks in the top four per cent of the Canadian equity category.

But the fund’s strong long-term performance record is not the result of just a few strong years. It has performed strongly with remarkable consistency over the decade, scoring in the top quartile of the category in four years, in the second quartile in two years, and in the bottom half of the category in just two years.

Performance has been helped by low expenses. The fund’s management expense ratio is just 1.39 per cent, compared with 2.40 per cent for the median Canadian equity fund.

So far this year, the fund has underperformed the overall market and its peers. In fact, the average fund has underperformed the market, despite the fact that many of them are underweight in resource stocks. This is also true of Beutel Goodman Canadian Equity, which is underweight in both energy (10.8%) and materials (7.0%). Combined, these two sectors make up nearly a third of the S&P/TSX. Meanwhile, the fund is overweight in the financial sector, which has lagged this year.

This is an edited version of an article that was originally published for subscribers in the June 16, 2017, 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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