Dynamic American Value Fund has lagged its category in recent years. But that may change as the U.S. economic outlook picks up steam, giving a boost to the fund’s cyclically-oriented portfolio.
We regularly advise you to add new money to those funds in your portfolio with the worst short-term record. Among our Top-40 funds, DYNAMIC AMERICAN VALUE FUND (Fund codes: DYN3541(BE), DYN041(FE), DYN3441(LL)) currently fits this description.
The fund seeks long-term capital growth by investing primarily in US stocks – that is, equity securities of U.S.-based businesses. To accomplish this objective, it purchases a concentrated portfolio of securities that trade for less than intrinsic value. Shares are sold when they are fully valued.
The fund has been a successful value investor over the long term. These past 10 years, for example, its compound annual growth rate of 5.7 per cent ranks in the top quartile of the U.S. equity category.
Dynamic American Value has also performed generally well under its current manager, David Fingold. Mr. Fingold, who has over 25 years of business, operational and investment experience, has been a key member of Dynamic’s value team since 2002.
He joined Dynamic American Value in 2005, and over the past eight years has delivered an annualized return of 4.4 per cent, which ranks in the second quartile of the U.S. category.
Over the eight years, the fund has performed in the top half of the category in five years. In each of the past three years, however, it’s delivered a bottom-quartile performance.
Why the fund has underperformed
There are several reasons for this underperformance in recent years, including negative effects of currency hedging and an overly cautious response to the European sovereign debt crisis in 2011.
More recently, though, the fund has moved to a more cyclical bias, as it sold off defensive holdings late last year in favor of more economically-sensitive stocks such as industrials. But this year, industrials have underperformed the U.S. market, while defensive sectors such as utilities and telecommunications have outperformed.
Assuming the U.S. economy continues to improve, however, this situation may reverse itself in the coming months. With nearly a quarter of its portfolio invested in industrials, the fund is well positioned for stronger economic times. So patience may pay off for unitholders.
Recommendation:
Dynamic American Value Fund is a long-term buy for investors who want a value-oriented U.S. equity fund and who can tolerate moderate investment risk.
Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846
Canadian Mutual Fund Adviser •6/13/14 •