| 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 | 2.75% |
| Code | DYN 087 – Front End Units DYN 787 – DSC Units |
| Minimum Investment | $500 |
Analysis: Industry magazine the Investment Executive recently named Oscar Belaiche the 2012 Fund Manager of the Year, based on his performance with the Dynamic Small Business Fund. The fund invests in small cap equity securities including business trusts, royalty trusts and REITs. The focus is on companies with a market cap of less than $3.5 billion.
Using what is described as a “quality at a reasonable price” approach, Mr. Belaiche and co-manager Jason Gibbs 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.
It is a well diversified portfolio, currently holding about 80 names. The top ten holdings make up approximately 23% of the fund. To help control risk, the maximum exposure that any one company can have in the portfolio is set at 5% at the time of purchase. Because their process is entirely bottom up, they are benchmark agnostic and sector weights are largely the by-product of stock selection. The maximum exposure of any one sector is typically capped at 20% of the fund based on book value.
They sell a name when it becomes overvalued, and they are not afraid to hold cash balances when no suitable investment opportunities are available. As of October 31, the fund held just under 20% of the fund in cash. Portfolio turnover has been modest, averaging around 63% for the most recent five year period. Costs are a touch on the high side with an MER of 2.77%, which is slightly above the category average.
Performance has been strong posting positive returns every year since 2003, except for 2008. The fund is one of the least volatile small cap funds in Canada. It pays a modest monthly distribution of $0.014, which works out to an annualized yield of 1.6%. The underlying portfolio has a dividend yield of 5.3%, which indicates that this distribution is sustainable going forward.
It is our opinion that this is a great fund for investors who are seeking relatively conservative exposure to small and mid cap stocks and trusts. We believe that this fund will continue to deliver strong risk adjusted and relative returns to investors, but we also believe that the double digit returns the fund has earned in the past are not sustainable going forward.