AGF American Growth Class

Analysis: This growth focused U.S. equity fund is managed by industry veteran Tony Genua. His process uses a mix of quantitative and qualitative screens to identify potential investment candidates, and a more detailed bottom up, fundamental review on portfolio companies. The goal is to have a concentrated portfolio of leading U.S. companies with strong growth potential.

The first step is to do extensive screening on the universe of U.S. companies. There are two levels of screens; quantitative and qualitative. The quantitative screens look for companies that have strong earnings and revenue growth, above average return on equity, the ability to generate strong free cash flow and a low debt to equity ratio.

Once these companies have been identified, a more qualitatively focused screening process is undertaken. At this stage, he is looking for companies that have investor friendly management, strategic position, new products or services, industry leadership and improving fundamentals. At the end of this screening process, there are approximately 100 potential investment candidates.

A detailed fundamental review is done on the remaining companies with the goal of identifying the companies that will have a near term catalyst that can unlock the company’s potential value. Typical catalysts include such things as a strong research and development pipeline, improving market share, improving productivity, a global reach or improving free cash flow generation.

This process results in a fairly concentrated portfolio that currently holds 35 names with the top ten making up approximately 40% of the fund. Given its focus on growth, it is not surprising to see that the largest sector exposure is technology, which makes up nearly 35% of the fund.

Performance has been decent, gaining 40% in the past year, outpacing the 36% rise in the S&P 500. Longer term numbers have lagged the index slightly, but it has performed better than the majority of other U.S. equity funds. One thing to watch is this fund is more volatile than the broader markets, outperforming in rising markets and underperforming in falling markets.

Perhaps the biggest drawback to this fund is its cost. It has an MER of 2.70%. While this is still higher than average, I have to give credit to AGF who recently cut the fees on the fund, and are absorbing a big chunk to keep costs where they are.

I like this fund, but it is definitely not appropriate for everybody. With its growth focus, it will be more volatile than both the index and other U.S. equity funds. However, if you’re looking for a decent U.S. growth fund and are comfortable with the higher risk, this is one you may want to consider.