You know a category is having a good year when the worst performing fund posts a gain of 10.5%. That is the case here.
The fund is managed using a quantitatively driven approach that rates and ranks stocks on a number of quality, valuation and yield factors. While over the long term, the model tends to deliver strong returns, but, there can be periods where it underperforms, sometimes dramatically. This has definitely been one of those times.
Another factor adding to the underperformance is the fund’s currency exposure, which is fully hedged. This will help to boost returns when the Canadian dollar is rising, but will hurt when the Canadian dollar is falling, as has been the case this year. In U.S. dollar terms, the S&P 500 is up 14%, compared with a 22% rise in Canadian dollar terms.
Despite the recent underperformance, this remains one of my favourite U.S. equity funds, and I expect that over the long term, it will continue to deliver strong relative returns to investors. One caveat is it can be a touch more volatile than other U.S. equity funds. But if you’re comfortable with that, you should be rewarded over the long term.