AGF Global Dividend Fund

Analysis: Managed by the team of Stephen Way and Thierry Jannini, the AGF Global Dividend Fund incorporates a top down country allocation framework and a bottom up fundamental security selection process to find high quality, dividend paying stocks around the world. Like many of the AGF managed funds, this one uses the Economic Value Added (EVA) growth approach that looks for companies that have a demonstrated history of generating an excess return on their invested capital.

The first step in the multistep process is to conduct a country screen which ranks countries according to a number of factors including liquidity, political risk, valuation, growth momentum and overall risk. Next, the team screens companies in the most attractive countries on criteria such as valuation, growth and momentum. This screening process results in a watch list of between 600 and 800 companies.

They then conduct detailed fundamental research on the most attractive names in this list looking for companies that have sound business strategies and high quality management teams. They also look for growth potential that has yet to be fully recognized by the market. Finally, the company must be trading at an attractive level of valuation and exhibit positive dividend prospects.

The end portfolio is well diversified, holding more than 60 individual names. As of October 31, the top ten holdings made up nearly one-third of the fund. With its focus on dividends, it is not surprising to see that portfolio is very large cap focused with significant exposure to the financial sector.

Performance has been decent with a five year return of 1.9%, finishing in the top quartile and outpacing the Dow Jones Global Total Return Index which lost 1.2% during the same period. Its volatility has been well below both the index and the category average.

Like other dividend focused funds, it tends to do well in down or flat markets and lag in rising markets. This was evidenced in 2008, when it dropped 17% while the index was down more than 28% and again in 2011 when the fund was up 1.8% while the benchmark dropped by 5.7%. Not surprisingly, it lagged in the rising markets of 2009 and 2010.

In reviewing the fund, we have two concerns. The first is that the MER is slightly higher than the category average. This has the potential to drag returns over the long term. The second concern relates to the potential of a short term sell off in U.S. dividend stocks as dividend tax rates are expected to nearly triple as a result of the fiscal cliff negotiations. Longer term, we expect that returns will normalize under the new tax regime. The fund is 40% invested in the U.S.

Overall, we like this fund. If dividend stocks in the U.S. experience a near term selloff, it may be a good buying opportunity for this fund, particularly for those investors with a longer term time horizon.