A Canadian-Focused Stock Fund Crafted for Tranquility…

Morningstar recently added to its coverage, with Parent, People, and Process ratings of Above Average thanks to its strong risk-reward profile.  

Unlike their Canadian equity counterparts, funds in the Canadian Focused category must keep at least half their assets in Canada-based firms, but they can leaven them with a healthy dose of non-Canadian picks. The added diversification has tended to improve the average Canadian focused fund’s risk-adjusted returns versus the typical Canadian equity offering.  

We expect the same from Fidelity Canadian Large Cap. Manager Daniel Dupont has run the strategy since 2011. Over his career as an analyst, he covered a diverse range of companies, from consumer goods to banks and even gold miners. He’s a patient investor, willing to wait years to buy companies at attractive prices. He looks for debt-light businesses that generate cash. A large team of experienced analysts support him, and he is quick to take advantage when stock prices diverge from company values.  

Fidelity Canadian Large Cap Fund

• Morningstar Medalist Rating: Bronze
• Morningstar Rating: 5 stars
• Morningstar Category: Canadian Focused Equity 
• Fund Size: C$8.5 billion 

The approach limits some of equities’ downside while taking on some of their upside. The strategy can lag its average peer in calmer markets, but it tends to catch up in down markets. Dupont’s fund is also used as a building block in the Fidelity Global Equity+ Fund and several allocation funds at Fidelity. The chart below shows the fund’s ability to offer some downside protection. It’s maximum peak-to-trough losses have tended to be shallower than the category average.

The portfolio tends to hold between 20 and 50 stocks, and it keeps far less in cyclical stocks than both the average Canadian equity fund and the average Canadian focused equity fund. Its defensive stance has paid off; over the three, five, and 10 years through September 2024, the F share class’s annualized returns rank in the Canadian Focused Equity category’s top quartile.

Canadian focused funds are a great option for investors who want to mix some foreign holdings with their Canadian stocks. The average fund in the category offers slightly better risk-adjusted returns versus the typical Canadian equity fund. Fidelity Canadian Large Cap is a great option due to its focus on low-debt, cash-rich, undervalued businesses and its strong down-market performance.

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