Performance in many dividend strategies has suffered in the past year or
two as investors worry over rising rates and chase high-flying growth
stories. Still, over the long-term, dividends play an important role in
returns, accounting for nearly 77% of the total return of the S&P/TSX
Composite for the 10 years ending May 31. One of my favourite dividend
funds is the
Fidelity Dividend Fund
helmed by lead managers
and David Wolf.
It is set up like a “fund of funds,” with sub-managers Don Newman running
the dividend equity sleeve while Catriona Martin and Sri Tella look after
the fixed-income side. The neutral mix of the fund is 95% equities and 5%
bonds. The asset mix is fairly static.
Equities are managed using a fundamental, bottom-up “growth at a reasonable
price” approach, as managers seek out companies that trade at a reasonable
price and have the potential to not only maintain, but also grow, their
dividends. Common characteristics include strong free cash flow generation
and improving earnings power. Quality of management is also considered. The
fund’s sector mix has heavy exposure to financial services and utilities.
The fixed-income sleeve has a core-focused approach that blends top-down
macro analysis with bottom-up security selection.
Performance over the past year has lagged, with a 12-month return of 5.9%
to Feb. 28, compared with 6.9% for the S&P/TSX Composite Index (Total
Return). One reason for the underperformance is the high cash balance,
which at Feb. 28 sat at a 27% weighting.
Value and interest-sensitive names have lagged, and market valuations
remain high, resulting in a more conservative positioning for the fund. The
high cash weight has been a drag on performance but will buffer the fund
against volatility and provide trading flexibility when valuations become
The fund tends to be less volatile than the index or its peers, resulting
in better-than-average risk-adjusted returns over the long term. Despite
its recent troubles, the fund remains a solid offering in the Canadian
Fidelity Dividend Fund
Fidelity Investments Canada
Cdn Dividend & Equity Income
Large Cap Value
Geoff Stein since April 2011; David Wolf since March 2014
2.09% Series B
FID221 (Front-end load)
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.
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