We’ve added a new fund to our recommended Conservative Canadian Stock Funds on the Money Reporter’s ‘The Top 40: Canada’s Best Mutual Funds’ list. Mackenzie Canadian Growth Fund’s investment approach follows a company-focused investment style, seeking companies with strong management, good growth prospects and a solid financial position.
We’ve added Mackenzie Canadian Growth Fund (Fund codes: MFC650(FE), MFC640(DSC), MFC7028(LL), MFC3198(LL)) to our Mutual Fund Planning Guide’s list of ‘The Top 40: Canada’s Best Mutual Funds’. It replaces Dynamic Value Fund of Canada, which we have removed from the Guide and recommend as a sell (see below).
Mackenzie Canadian Growth invests mainly in Canadian stocks to achieve long-term capital growth and provide a reasonable rate of return. The fund can also invest up to 49 per cent of its assets in foreign securities. Currently, it has 51 per cent of its assets invested in Canada, 35 per cent in the US, eight per cent in the Netherlands and one per cent in France. It’s a good choice, therefore, if you’re looking for a fund with mostly Canadian content, but also sizable foreign exposure.
The fund’s investment approach follows a company-focused investment style, seeking companies with strong management, good growth prospects and a solid financial position. Emphasis is placed on paying reasonable prices for the free cash flow growth that companies in the portfolio are expected to achieve.
We think its growth orientation makes the fund a good complementary holding with one of the value offerings we include among our Very Conservative and Conservative funds. Leith Wheeler Canadian Equity Fund comes to mind.
The fund is also a good choice if you’re looking for a strong management team. The head of the team is Dina Degeer, who has been a manager of the fund since 1995.
The fund itself was started in 1976. Since then, its compound annual growth rate is a stellar 10.0 per cent. Performance in more recent years has also been relatively strong. In each of the past one-, three-, five-, 10- and 15-year periods, it has performed in the top quartile of the Canadian focused equity category. And in the past 10 years, it has performed in the top half of the category in six years.
The fund has been slightly more volatile than the S&P/TSX Composite Index these past few years. So we feel it makes a good fit in most portfolios.
Another feature of the fund you may find appealing is that it’s not index focused. That’s a product of the management team’s focus on individual companies. Currently, the portfolio’s top sectors are healthcare stocks (17.6%), financial stocks (17.1%) and technology stocks (11.8%). These weightings make the fund a good complement with a Canadian fund that’s more index oriented such as an exchanged traded fund that tracks the S&P/TSX 60 Index or the S&P/TSX Composite Index.
When it comes to individual holdings, the fund says it invests in niche market leaders that are not typical household names. Some of them are, however, as Royal Bank and Telus occupy the top-two positions in the fund. But the portfolio’s top holdings also include lesser-known names such as Aon (insurance) and Koninklijke Philips (health care).
Mackenzie Canadian Growth Fund is a buy if you can tolerate medium investment risk.
Sell Dynamic Value Fund
We first placed Dynamic Value Fund of Canada on our top-40 list in 2007. Back then, it was managed by David Taylor, who had delivered double-digit annual returns in the years he had managed the fund. Performance continued to be good until about the middle of 2011. In the fall of 2011, Mr. Taylor left the fund in the wake of Scotiabank’s takeover of Dynamic.
His successor, Cecilia Mo, took a different tack with the fund. She reduced the portfolio’s resource exposure, and subsequently its volatility came down. But though it performed relatively well in the first couple of years of her tenure, the fund performed in the bottom half of the category from 2014 onward.
Last fall, Ms. Mo took a leave of absence from the fund. Meanwhile, it has continued to lag its category under a new management team consisting of Don Simpson, Eric Mencke and, more recently, Rory Ronan.
If you have the patience, you might want to keep holding the fund to see how the new management team fares in terms of results. But we see no reason to keep it on our Top-40 list when better, proven choices are available. Generally, we view it as a sell. But you’ll also want to consider tax liabilities and deferred commissions, if these apply, in making your own decision.
This is an edited version of an article that was originally published for subscribers in the September 14, 2018, 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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