| Fund Company | Beutel Goodman Company Ltd. |
| Fund Type | Canadian Equity |
| Rating | $$$$ |
| Style | Value |
| Risk Level | Medium |
| Load Status | No Load |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Mark Thomson since June 1999 Pat Palozzi since August 2007 James Black since January 2010 |
| MER | 1.43% |
| Code | BTG 770 – No Load Units |
| Minimum Investment | $5,000 |
Analysis: There are very few funds that rank near the top of a category month in and month out. The Beutel Goodman Canadian Equity Fund is a notable exception to that rule.
It is best described as a high conviction portfolio that will typically hold between 35 and 45 names. It is a pure Canadian equity fund that has no exposure outside of Canada. The investment process is highly disciplined with a great emphasis on capital preservation and a focus on delivering absolute returns while managing risk. The focus is on well managed, large cap companies that are leaders in their respective fields. A small portion is invested in the Beutel Goodman Small Cap Fund, which provides exposure to small and medium sized companies that have the potential to become leaders in their respective fields. .
The bottom up stock selection process has a definitive value bias to it. Any potential investment candidate must be trading at a discount of at least 33% to their estimate of intrinsic value, and have the ability to grow within the next three years. It is this margin of safety which helps to provide downside protection when markets become volatile. The approach is also quite patient. Portfolio turnover has averaged less than 20% for the past five years.
There is evidence that this approach works. For example, in 2008 the S&P/TSX Composite Index plummeted by 35%, yet this fund held up much better, losing only 22%. The flip side is that it will likely lag in a sharply rising market. This was indeed the case in 2009, when it failed to keep pace with the 33% jump in the index.
Looking ahead, it is very conservatively positioned with significant underweight holdings in both the energy and materials sector. It has no exposure to REITs or utilities because they believe that the valuations look rich and there is not enough margin of safety at current levels. Still, they remain fully invested and are using market volatility as an opportunity to add new names to the fund at compelling valuations.
We expect that it will provide good downside protection in volatile markets, but will likely lag in a sharply rising market. All in all, this is a great core Canadian equity fund for most investors.