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Analysis: Like other funds that carry Dynamic’s Power label, this Canadian neutral balanced fund is not for the faint of heart. It carries a target asset mix of 50% equities and 50% bonds, although the managers have some flexibility around that. As of January 31, the fund was nearly 60% stocks, 38% bonds and 2% in cash.
Rohit Sehgal runs the equity portion of the fund using a growth focused, bottom up approach that looks for companies that have strong growth contributors including strong return on equity, high profit margins and better than average growth rates. The equity sleeve of this fund will look very similar to the Dynamic Power Canadian Growth Fund. (
Michael McHugh looks after the fixed income side of the fund. He tends to focus on high quality government and corporate issues.
While the long term returns have been impressive, the volatility is very high. In fact, the volatility of this fund is on par with what one would experience in a pure dividend or conservatively managed Canadian equity fund.
Mr. Sehgal has made some changes to the portfolio in the recent months by reducing his exposure toCanada. As of January 31, Canadian equities stood at 36.2% of the fund whileU.S.equities have been increased to 18.8% – the highest it has been in the fund’s history. In theU.S., the fund is focusing on large cap, blue chip stocks. From an asset mix standpoint, the managers believe that stocks are more attractive than bonds at the moment, and as a result will continue to hold an overweight allocation to stocks.
With the focus on blue chips, the quality of the equity portfolio has increased, which should also help to lower overall volatility. Given the expectation of a volatile environment, it is our opinion that these changes will be positive for the fund in the near to medium term.
Despite this, this is not a fund that we would recommend for most investors. Even with the increase in quality, it is far too volatile. However, for those willing to accept the higher risks, this is a fund that has the potential to deliver higher than average returns.