Beutel Goodman American Equity Fund

Analysis:The Beutel Goodman American Equity Fund is managed using a highly disciplined, bottom up value approach that places emphasis on capital preservation, with a focus on delivering absolute returns and managing risks. To achieve this, the managers look to identify high quality, well managed, dividend paying companies that have a history of generating stable cash flows and have earned a level of return that is greater than the company’s cost of capital.

Given the value bias used, any company considered for inclusion in the portfolio must not only be undervalued, but have the ability to grow their share price closer to its intrinsic value within a three year period. When evaluating a company, they pay particular attention to the price to earnings, price to cash flow and price to book ratios in the context of not only the company’s historical numbers, but also compared to the market and what the management believes to be the company’s sustainable earnings growth rate.

The result is a concentrated portfolio of U.S. based large cap companies that are leaders in their field. As of September 30, it held 29 stocks with a top ten making up 48% of the fund. At the end of October, they viewed U.S. equities as attractive, supported by a stable economy, and sound balance sheets.

They are seeing value in the technology sector, and have added to their holdings in the past few months. They also believe that financials look attractive given their expectation of a stable economic environment. It has minimal exposure to commodities and deep cyclical, high beta stocks.

They are patient in implementing their process, with portfolio turnover averaging 33% for the past five years. That said, they are not afraid to use periods of heightened volatility as an opportunity to improve the quality of the portfolio. This happened in 2008 and again in the first half of 2012 when several new names were added to the portfolio including Halliburton, and JP Morgan Chase.

Performance has been decent, gaining an annualized return of 13.3% for the past five years, slightly trailing both the S&P 500 and the category average. It also has decent downside protection, holding up well in 2008, losing less than half of the index’s 23% drop. Volatility has been lower than the category average, but has matched the broader market.

Another positive is the relatively low MER of 1.49%, which is well below many of its competitors.

The relative risk reward characteristics have been dropping relative to the peer group. This has been a bit of a concern. Still, on balance, this is a very solid U.S. equity offering that I believe will deliver above average returns with below average risk over the long term.