RBC O’Shaughnessy U.S. Value Fund

Analysis: In managing this U.S. equity fund, Jim O’Shaughnessy uses a very quantitatively driven approach to stock selection. He has poured over decades of historical stock data to determine the factors which have, at least on a historic level, delivered excess returns to investors. He outlined his findings in his book “What works on Wall Street”. The key factors that are considered by the model include sufficient trading size, trading volume, growing sales and cash flows. Another metric considered is what O’Shaughnessy calls “shareholder yield” which is a combination of dividend payouts and stock repurchase programs.

Currency exposure in the fund is fully hedged. This will boost performance when the U.S. dollar is rising, and will hurt when it falls.

The fund has been on a tear of late, gaining 31% in the year ending May 31. For the past three years, it has averaged an annualized 18% per year. This has handily outpaced both its peer group and the S&P 500.

Historically, value investing has tended to be less volatile than other investment styles. This is a fund that definitely bucks that trend. Its volatility is considerably higher than other value focused funds, as well as the broader market. In fact, its volatility is nearly double that of the S&P 500. It is also prone to some pretty big drawdowns. Between June 2007 and February 2009 the fund dropped by a mind blowing 61.8%.

The costs of this fund are reasonable, with an MER of 1.54%.

For investors who have a relatively short time horizon, this is a fund that should likely be avoided because of its higher volatility. However, for those with iron stomachs looking for long term capital growth within the U.S. market, this may be a fund to consider.