|
Analysis: 2011 was not exactly kind to Rohit Sehgal and the Dynamic Power Canadian Growth Fund, which dropped by more than 26% during the year. According to the manager, this underperformance was the result of their overweight exposure in Canada’s growth oriented sectors, an underweight position in defensive names and an underweight in the U.S. market.
While remaining committed to their growth oriented, bottom up approach, Mr. Sehgal has made some tweaks the fund recently. The investment process remains focused on finding companies that looks for companies that have strong growth contributors including strong return on equity, high profit margins and better than average growth rates. However, the manager has actively sought out growth opportunities outside of Canada.
As of January 31, the Canadian equity exposure has been reduced to just under 60% of the fund. U.S. equities have been the main benefactor, increasing to a record high 33% of the fund. . In the U.S., the fund is focusing on large cap, blue chip stocks.
Volatility of this fund remains extremely high. As of January 31, the volatility of this fund was more than 1.5 times the category average. With this focus on blue chips, the quality of the equity portfolio has increased, which should also help to lower overall portfolio volatility.
Costs of the fund are reasonable with an MER of 2.43%. But the fund does carry a performance fee which rewards the manager for performance that is in excess of the S&P/TSX Composite Index, which is subject to a high water mark. This will increase the total cost to investors when performance is strong.
In our opinion, this is not a fund that should be considered a core holding in a portfolio. It is far too volatile. However, for higher risk investors who are looking for increased returns over the long term and are comfortable with the big swings in valuation, then this fund could be part of a well diversified portfolio as a potential return enhancer.