| Fund Company | Dynamic Funds |
| Fund Type | Canadian Small / Mid Cap Equity |
| Rating | A |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Oscar Belaiche since August 2002 Jason Gibbs since March 2007 |
| MER | 2.79% |
| Code | DYN 087 – Front End Units DYN 787 – DSC Units |
| Minimum Investment | $500 |
Analysis: Unlike a lot of small cap funds that look to shoot the lights out with big returns and big volatility, this fund takes a more conservative approach. Managed by the team of Oscar Belaiche and Jason Gibbs using what they call “quality at a reasonable price” approach.
They look for best in class businesses with strong balance sheets, dominant positions in their respective industries and management teams that hold a significant stake in the business. Typically, these companies tend to exhibit low levels of volatility and generate growing levels of free cash flow. Given the background of Mr. Belaiche, it tends to be heavily exposed energy, REITs, and financials, which as of October 31 made up nearly 45% of the fund.
In addition to their emphasis on stock selection, they are also quite active with their use of cash. Using macroeconomic indicators, cash is raised or put to work, depending on their estimate of the risk reward. Cash was about 22% at the end of October. So far, this has helped it avoid some pretty big drawdowns. In 2008, it was down 18% compared with nearly 50% for the BMO Canadian Small Cap Index. It was also up 1.5% in 2011 while the benchmark was down more than 16%.
The longer term performance has been stellar, earning an annualized return of 14.4% for the past ten years. Shorter term numbers have been less impressive, with a one year gain of 9.6%, well behind most of its peers in the small cap space. Some of this underperformance can be attributed to its higher exposure to interest sensitive holdings, which have been under pressure since May. The higher cash balance can also drag when markets are on a run.
As strong as performance has been, it has been done with a level of volatility that is well below average. Because of this, I don’t see this as a fund you buy for its upside performance. Instead, it is one you bring in to give you conservative small cap exposure, that shouldn’t hurt you too badly in volatile markets.
In my last review, I said that that I didn’t think that its historic level of above average absolute level of performance can be repeated. I stand by that. However, I do believe that because of its relatively low levels of volatility it can outperform over the long term on a risk adjusted basis. This can be a great fund for investors looking for conservative small cap exposure in their portfolios.