Equity

The Equity Advantage

Every day, Dynamic’s portfolio managers aim to build concentrated portfolios that deliver differentiated performance beyond the benchmark.

The Dynamic Equity Advantage

While some Canadian fund managers claim to be active, the reality is that they are actually "closet indexers" – charging fees for active management while passively mirroring an index. Unlike closet indexers and passive fund managers, Dynamic's legitimately active portfolio managers have the flexibility to:

Build concentrated, high-conviction portfolios that look nothing like the index;

Exclude certain sectors, geographies or companies to better manage risk and enhance returns;

Utilize capital market tools – such as options, hedges, futures and short-selling – to better manage volatility and enhance returns;

Vary holdings to take advantage of emerging opportunities beyond the benchmark; and

Adjust cash levels during periods of market instability.

Legitimately Active Management®: Three Key Criteria

Understanding Active Share

Active management is a style that fundamentally rejects benchmark hugging and closet indexing. One key criteria of truly active management is active share: the percentage of stocks in a portfolio that are different from those in the benchmark.

When it comes to active share a higher number means more of the portfolio stands out from its index.

It tells us just how active a manager really is; rather than mirroring the benchmark, it measures how far the manager goes beyond it. The fees that you pay for active management should get you exactly that: high active share can help deliver benchmark-beating performance.

Many Dynamic equity fund overview includes the fund's active share percentage to show how the portfolio manager is actively exploiting opportunities beyond the index.

High Conviction Portfolio Management

Historically speaking, investment portfolios that have high industry concentrations typically outperformed their less concentrated benchmarks and peers.

The simplest way to measure a portfolio's concentration is by the number of holdings it has. The lower the number of holdings, the higher the concentration. Portfolios with low concentration, in other words a high number of holdings, are more likely to display muted portfolio performance.

PORTFOLIO CONCENTRATION BY THE NUMBERS

Research shows that concentrated U.S. large-cap equity portfolios outperformed their less concentrated counterparts by 115 bps, U.S. small-cap by 96 bps and EAFE by 163 bps annually, after fees.

	Concentrated (Net avg value added) bps	Unconcentrated (Net avg value added) bps	The Concentrated Advantage bps
U.S. Large-Cap Equity	115	69	-46
U.S. Small-Cap Equity	111	14	96
EAFE Equity	166	3	163

Source: Cambridge Associates LLC, eVestment Alliance, Frank Russell Company, MSCI

LOW R²

R² is a precise measurement that shows the correlation between a fund's performance and that of the benchmark. When it comes to analyzing R², the lower the better.

For example, an R² of 99% means that 99% of the mutual fund's performance is tied to its benchmark. In this example, only 1% of the Fund’s performance came from the manager's active investment choices beyond the benchmark.

R² BY THE NUMBERS

Low R²

(Low correlation to benchmark)

High R²

(High correlation to benchmark)

Research suggests that a portfolio with low R² would likely outperform the benchmark, whereas a portfolio with high R² would likely underperform. In this example, the portfolio with low R² outperformed the benchmark by 3.8% compared to the high R² portfolio which underperformed by -1.2%.

Source: Ahimud & Goyenko

Discover the Fixed Income Advantage

Dynamic’s actively managed fixed-income funds can respond to changing market conditions to increase opportunities and minimize risk.

Learn more

Find out why Active Matters

At Dynamic Funds, active management is the cornerstone of our investment process.

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Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in units value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual fund investments are not guaranteed, their values change frequently and past performance may not be repeated.
The information provided is not intended to be investment advice. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly and action is taken based on the latest available information. To the extent this document contains information or data obtained from third party sources, it is believed to be accurate and reliable as of the date of publication, but 1832 Asset Management L.P. does not guarantee its accuracy or reliability.
Dynamic Funds® and Legitimately Active Management® are registered trademarks of The Bank of Nova Scotia, used under license by, and is a division of, 1832 Asset Management L.P. © Copyright 2024 The Bank of Nova Scotia. All rights reserved.

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Results

The Equity Advantage

Every day, Dynamic’s portfolio managers aim to build concentrated portfolios that deliver differentiated performance beyond the benchmark.

Legitimately Active Management®: Three Key Criteria

Understanding Active Share

High Conviction Portfolio Management

PORTFOLIO CONCENTRATION BY THE NUMBERS

LOW R²

R² BY THE NUMBERS

Discover the Fixed Income Advantage

Find out why Active Matters

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The Equity Advantage

Every day, Dynamic’s portfolio managers aim to build concentrated portfolios that deliver differentiated performance beyond the benchmark.

Legitimately Active Management®: Three Key Criteria

Understanding Active Share

High Conviction Portfolio Management

LOW R2

Discover the Fixed Income Advantage

Find out why Active Matters

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LOW R²