Morningstar Minute: Beutel Goodman American Equity

A rare winner in a tough category.

Christopher Davis 31 October, 2016 | 5:00PM
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Christopher Davis: If you're a Canadian investor seeking a winning actively-managed U.S. equity fund, you'll find some slim pickings out there. Nearly all funds have failed to beat the S&P 500 Index over the long haul. A rare exception is Bronze-rated Beutel Goodman American Equity. Its long-term record has also trounced its category rivals.

Warren Buffett likes to note that it's not so much intellect that leads to investing success, but discipline. And there's plenty of that here: Managers Glenn Fortin and Rui Cardoso won't invest in any stock unless it trades at least 30% below what they think it's worth, which gives them a healthy margin of safety, and they don't add to any position unless it meets this standard.

Where the managers set themselves apart is in their sell discipline. Investors commonly get themselves into trouble by falling in love with their winners or failing to acknowledge weakness in their losers. The managers guard against these tendencies by selling a third of their position when the stock hits a price target. And once a stock does hit its price target, they will consider whether the stock's fair value price has increased. If it hasn't, they will automatically sell their entire position. If a stock falls below their downsize target, they will have another analyst with some fresh eyes consider whether the fundamentals have changed.

What concerns us here is that the managers have a lot on their plates. They are thoughtful investors that know their companies well, but their five-person team covers both the U.S. and international stocks. Their strongest competitors cover the same ground with a lot more resources. We also think do-it-yourselfers might find this one a bit pricey with its 1.5% MER. But it's a better-than-average deal for those investing through an advisor.

Overall, though, we think the quality of this fund's process, as well as Beutel Goodman's strong investment culture, are in this fund's favor.

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Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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