As of Sept. 30, the portfolio was allocated 55% to investment-grade bonds,
35% in Canadian equity, and 8% in preferred shares.
The Leith Wheeler Canadian Dividend Fund Series A
accounted for 35% of holdings, the
Leith Wheeler Preferred Share Fund
was the second-largest at 8%, while another 8% was allocated to the
Leith Wheeler Multi Credit Fund. There is some flexibility in the asset mix, and the managers will adjust
the exposure based on the available opportunity set.
The investment process starts with a top-down analysis that sets the
economic and interest rate outlook. This helps the managers establish
targets for duration, sector, and credit quality factors. Security
selection is bottom-up, as the managers use a fundamental credit analysis
that looks for credits trading at reasonable levels, offering attractive
yields for the risk.
On the equity side, the exposure comes from investing in the Leith Wheeler
Canadian Dividend Fund, where the focus is on high-yielding,
dividend-paying equities. The fund uses a fundamental, bottom-up,
value-focused approach to find higher-yielding dividend stocks. Foreign
exposure is limited to 20%, although given the focus on tax-advantaged
income, most of the equity exposure is expected to be in Canada. At the end
of February, less than 8% was invested abroad.
The equity sleeve looks much like what you’d expect from a Canadian
dividend fund, with an overweight to the higher-yielding sectors such as
financials, real estate, utilities, and industrials.
However, one drawback to the fund’s overall positioning is that it carries
a higher degree of interest rate sensitivity, which has dampened returns in
the recent volatile and rising-yield environment. This positioning also
helps explain why the shorter-term performance numbers have lagged some of
Another potential drawback is that the fund has been more volatile than
many of its fixed-income balanced peers. This is because it carries a
modestly higher exposure to equities.
Still, all things considered, the strong, disciplined management team,
repeatable investment process, and focus on risk management make this a
very strong balanced fund offering.
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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