Question: I have held the AGF Canadian Large Cap Dividend Fund for a number of years .What is your opinion of the fund?
Answer: I have to admit that I have been a little disappointed in this fund in the past few years. First off, the name of the fund is a bit of a misnomer in that it does not pay investors a regular distribution. Instead, it is basically a core Canadian equity fund that invests in high quality blue-chip companies. The management team of Gord MacDougall and John Novak of Connor Clark & Lunn use an approach that combines top down macroeconomic research and a bottom-up stock screening and selection process. Their style can best be described as “Growth at a Reasonable Price” and tends to favour large cap growth companies that are trading at a discount to their estimate of intrinsic value.
Some of the key factors that the team looks for include a demonstrated ability to grow sales, earnings and cash flow at an above average rate. They are also looking for companies that pay dividends. As a result, the fund is significantly overweight financials with the top three holdings all being banks. It is also heavily weighted towards energy and materials. Combined, those three sectors make up 73% of the fund.
Performance has been middle of the pack for the past several years, while the long term numbers have been stellar. Volatility has been slightly less than both the index and the category average. The MER of the Classic Series is low at 1.87% while the Series A units carry a reasonable 2.26%, which is still below the category average.
Looking ahead, the manager has maintained a cyclical tilt to the fund, which they believe will allow it to benefit from strong earnings and dividend growth once the macro events finally settle down. They are also expecting that many of the holdings will benefit from increased dividends in the next few months. Despite the recession in Europe, they are still expecting modest growth in Canada.
On balance, this isn’t a bad fund. It has a well respected management team, a disciplined process and a reasonable cost. Despite that, there are other funds in the category which we feel are better positioned for the current environment. They offer more attractive risk reward profiles, more favourable valuation characteristics and a higher dividend yields on the underlying portfolio. Our picks include Fidelity Canadian Large Cap Fund, IA Clarington Canadian Conservative Equity Fund, RBC North American Equity Fund and Mawer Canadian Equity Fund.