The Money Reporter has added Fidelity Canadian Large Cap Fund to its top-40 list of Canada’s best mutual funds.
Fidelity Canadian Large Cap (Series B fund code: FID231 (FE)) aims to achieve long-term growth through investing primarily in Canadian stocks. But it may invest up to 49 per cent of its assets in foreign securities. Its focus is on large companies.
The fund follows a value investing approach. When buying and selling securities, its portfolio manager examines each company’s potential for success in light of its current financial condition, its industry position and economic and market conditions. The manager considers factors such as growth potential, earnings estimates and quality of management.
The large cap equity fund has successfully used these strategies to consistently outperform its peers over time. Its compound annual growth rate for the past 10 years, for example, is 10.6 per cent. This performance ranks in the top one per cent of the Canadian focused equity funds category.
Fidelity Canadian Large Cap has continued to perform well under its current manager, Daniel Dupont. Mr. Dupont took over the fund in January 2009. Since then, it has performed in the top half of the category in six of the seven years ended Dec. 31, 2015.
Volatility has been well below average for a Canadian focused equity fund. Over short and long time frames, the fund has been less volatile than both the S&P/TSX Composite Index and the average fund in the category.
Doing the right things
The fund has continued to outperform over the past year, gaining 4.4 per cent, to rank in the top quartile of the category. One thing Mr. Dupont has done right is to avoid Valeant Pharmaceuticals, which has decimated many investment portfolios.
Another thing he has done right was to increase the fund’s exposure to energy and materials stocks late last year, while reducing exposure to health care stocks and tech stocks. Consequently, the fund has continued to do relatively well so far this year, gaining 4.4 per cent, to once again rank in the top quartile.
The fund’s industry sector breakdown as of March 31 was as follows: financials, 14.0 per cent; consumer staples, 14.0 per cent; energy, 9.2 per cent; technology, 9.0 per cent; utilities, 8.2 per cent; materials, 7.3 per cent; industrials, 7.1 per cent; health care, 4.5 per cent; telecommunications, 4.2 per cent; and consumer discretionary, 3.4 per cent.
Another factor that has helped the fund do well in volatile markets is a large cash position. Its asset mix breaks down as follows: Canadian equities, 50.4 per cent, foreign equities, 30.4 per cent; and cash, 19.1 per cent. This high cash position gives Mr. Dupont flexibility to buy at lower prices should market volatility increase in the near future.
Top holdings in the fund include TD Bank, insurance company Fairfax Financial and CGI Group.
The management expense ratio of 2.30 per cent is below average for the category.
Fidelity Large Cap Fund is a buy if you want a core, very conservative Canadian focused equity fund.
Sell Harbour Fund
To make room for Fidelity Canadian Large Cap in the top 40, the Money Reporter has removed CI Harbour Fund (Fund codes: CIG690(FE), CIG890(DSC), CIG1890(LSC)) from the Mutual Fund Planning Guide and now rates it a sell.
The fund, which was once a relatively strong performer in the Canadian focused equity funds category, has lagged its peers in more recent years. In fact, in each year from 2013 to 2015, it has been a bottom-quartile performer in the category. This has dragged down the fund’s longer-term results. Over 10 years, for example, its 10-year compound annual growth rate is 2.7 per cent, just a third-quartile performance.
While performance has lagged, management has undergone considerable changes in recent years. The most recent change occurred in April when Stephen Jenkins, who had managed the fund since 2012, left Harbour Advisors. While Mr. Jenkins had a long track record with Harbour dating back to 1997, his replacement, Ryan Fitzgerald, is new to the organization. He was formerly a co-manager of Signature High Income Fund, which has had a lackluster track record in recent years. Given the uncertainty of a new manager and other management changes at Harbour, we now find Harbour Fund unattractive.
Money Reporter, MPL Communications Inc.
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