Managed for Steadyhand by Brian
Eby of Connor Clark & Lunn Investment Management, the fund has a target
asset mix of 75% bonds and 25% high-yielding equities, such as dividend
paying stocks and real estate investment trusts (REITs).
At the end of June, it was slightly below its bond target, with 73% of the
fund in fixed-income investments. Historically, the fund favoured corporate
bonds, but in recent quarters, this mix has shifted. The fund now favours
government bonds, with provincials making up the bulk of the exposure
because of their higher yield. Corporate bonds now make up about 30% of the
The balance of the fund is invested in high-yielding equity, which makes up
23%, and 4% invested in REITs.
Year to date, performance has been disappointing, with the fund gaining a
modest 0.06% to the end of July, while edging down -1.3% over the past
year. These numbers have lagged both the benchmark (25% S&P/TSX
Composite Total Return Index/75% FTSE/TMX Canada Universe Bond Index) and
the peer group. In the longer term however, the fund has performed very
well, with a five-year average annual compounded rate of return of 4.6%,
outpacing the benchmark. It has consistently outperformed its risk group,
Fundata Prospectus Risk Index (Low to Medium) as seen in the graph below.
Volatility has been roughly in line with the broader Canadian bond market,
despite having more than 25% invested in equities.
Looking ahead, the managers’ focus remains on risk management, and they
have continued to move the portfolio to a more defensive positioning. On
the equity side, they look for quality companies that can not only sustain,
but grow, their dividends. They also prefer more “value” type stocks rather
than growth names, which typically carry higher levels of volatility and
risk. In the fixed-income sleeve, quality is also the focus, with only a
modest exposure to non-investment-grade debt.
In the current environment, I expect returns will remain under pressure, as
the interest rate environment appears to have shifted and now favours
potentially higher yields with increased volatility. With more than a
quarter of the fund invested in quality equities, I would expect this fund
to be able to outpace more traditional bonds, but it may lag some of its
fixed-income balanced peers that may carry higher allocations to equities.
I don’t see this as a bond replacement for most investors, but instead, see
it as a great diversifier when used as part of a well-diversified
portfolio. It can be a great complement to your current bond allocation.
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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only and is not intended as personalized investment advice.