Fund in Focus: Fidelity Monthly Income Fund

Defensive, low-volatility strategy delivers solid risk-adjusted returns

The Fidelity Monthly Income Fund is focused primarily on Canada and is structured very much like a fund of funds, investing in various underlying strategies managed by some of Fidelity’s best managers.

Portfolio managers Geoff Stein and David Wolf, with the resources of Fidelity’s Global Asset Allocation team, use a multi-input, multi-step investment process that blends top-down macro analysis, bottom-up research, market valuation, and investor sentiment to help shape their outlook, and position the portfolio accordingly.

The neutral asset mix of the portfolio is 50% equity and 50% fixed income. At the end of July, the fund was defensively positioned, holding around 6% in cash, 44% in equities, 45% in bonds, with the rest in a mix of convertibles, investment-grade commercial mortgage-backed securities and other investments. The fixed-income portion of the fund is overweight higher-yielding corporate bonds for the additional return potential and the diversification benefits.

The equity managers remain defensively positioned, expecting continuing market volatility, which they see as an opportunity for the fund.

The fund has lagged the index and peer group year to date, up 0.8% to Aug. 31. owing to its defensive positioning. Still, for the past 10 years ending Aug. 31, the fund has delivered an average annual compounded rate of return of 5.8%, beating the category average of 5.1%. Its defensive stance and low volatility have helped it deliver better-than-average calendar-year returns for every year over the past 10 years except 2017 and 2019.

Volatility has been well below average, with annualized 3-year standard deviation at 7.9%, significantly below the category median of 8.7. It has also done a great job protecting capital in down markets, participating in less than 70% of the market downside over the past three and five years.

One drawback is that it yields a minimal 1.4%, making it less attractive for those who need cash flow. The net result is a risk-adjusted return that is better than the category average, providing investors with a strong balance between risk and return.

With its disciplined investment process, strong oversight, and a focus on risk management, this is a solid contender for those seeking a Canadian-focused balanced fund.

Fidelity Monthly Income Fund
Fund company: Fidelity Investments Canada
Fund type: Canadian Neutral Balanced
FundGrade Rating: C (August)
FundGrade A+® Awards: 2014-2016
Style: Top-down macro/fund of funds
Risk level: Low to medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Geoff Stein since Sept. 2011, David Wolf since March 2014
MER: 2.07% (Series B)
Fund codes: FID269 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.