Buy this fund for long-term growth from U.S. stocks

We’ve added Beutel Goodman American Equity to our list of ‘The Top 40: Canada’s Best Mutual Funds’ in the category of recommended equity mutual funds that invest mainly in U.S. stocks.

US_StocksWe’ve added Beutel Goodman American Equity Fund Class D (Fund code: BTG774(FE)) to our Mutual Fund Planning Guide.

Beutel Goodman American Equity seeks long-term growth in equities of American issuers. To do this, the fund’s adviser seeks companies that create shareholder value through the sustainable generation of free cash flow. This, the people at Goodman believe, should provide acceptable longer-term returns and protect investors’ capital by limiting downside risk.

One drawback of this fund is that it exposes you to foreign security risk. That won’t be a concern when the U.S. dollar appreciates against the Canadian currency. But when the Canadian dollar rises against the greenback, your U.S.-dollar returns will be eroded. Given this, you should invest in this equity fund for the long term, as currency movements tend to cancel each other out over long periods of time.

Another factor that should help mitigate foreign-currency risk is the quality of this fund. Beutel Goodman’s fundamental bottom-up value investment philosophy is grounded in a disciplined research process, with a focus on capital preservation, absolute risk reduction and downside protection in declining markets.

The test of this is the financial crisis of 2008, a year in which the average U.S. equity fund declined 28.3 per cent. Beutel Goodman American, by contrast, limited its loss to a much less onerous 10.4 per cent.

Consistently strong performing equity mutual fund

While the fund seems able to limit its losses in bad years, it’s been a consistently strong performer in most other years. For the 10 years ended Dec. 31, 2016, for example, it performed in the top quartile of the U.S. equity category in five years, in the second quartile in two years, and in the third quartile in three years. Looked at another way, the fund has been a top-quartile performer in each of the past one-, three-, five- and 10-year periods.

Though results have been strong, risk seems well managed. The fund is well diversified across industry sectors. Only the technology sector, which makes up 22.2 per cent of assets, accounts for more than a fifth of the portfolio. Other relatively heavily-weighted sectors include industrials (18.8%), healthcare stocks (17.4%) and financial stocks (17.3%). The rest of the assets are spread over five different sectors.

The fund’s relatively heavy exposure to technology stocks and healthcare stocks makes it a nice complement to Canadian stock portfolios, which tend to have little exposure to these sectors. You can cut your sector risk, then, by adding this fund to your investment portfolio.

While individual holdings are concentrated among just 27 stocks, this number, in our view, is sufficient to achieve the benefits of diversification. Top holdings include Parker Hannifin and Verizon.

The fund’s management expense ratio is 1.50 per cent, well below the 2.06-per-cent average for the U.S. equity category.

Beutel Goodman American Equity Fund is a buy if you want long-term growth from U.S. stocks and you can accept medium investment risk.

This is an edited version of an article that was originally published for subscribers in the May 19, 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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