Fund in Focus: CI Signature High Income Fund

FundGrade A+® Award winner

Over the long-term, CI Signature High Income Fund has been a stellar performer, offering an attractive mix of solid total returns, a stable stream of income, and below-average volatility. That has earned it three annual FundGrade A+ Awards. In the shorter term, however, it has struggled, trailing the index and peer group in 2018. A key reason for this underperformance has been the portfolio’s construction.

The fund’s main objective is to generate income without taking on excessive risk. As such, it has avoided growth-focused sectors such as technology and high-flying consumer names. But because these have been key market drivers through 2017 and much of 2018, this fund’s performance has lagged.

Contributing to that lag was the fund’s high exposure to the energy sector, which suffered from rising rates and general lack of interest in energy in general. And with the fund’s higher level of interest rate sensitivity in the equity sleeve, rising rates have created an additional headwind to performance.

So where do we go from here? Despite the recent underperformance, this remains an excellent fund. Managed by Eric Bushell and the Signature Global Asset Management team, the fund has a tactical mandate and can invest anywhere in the world. The approach is somewhat style-agnostic, involving an analysis of a company’s entire capital structure, as well as the many qualitative aspects of the company, such as management, disclosure, and governance. This gives the fund its opportunistic slant, allowing it to buy the most attractive part of a company.

At the end of December, the portfolio was allocated 32% to fixed income, 21% to U.S. equity, 14% to Canadian equity, 11% income trusts, 9% international equity, and the balance in cash.

The fund pays a monthly distribution of $0.07, for an annualized distribution yield of 6.6%. My concern is that we may see a cut to the distribution if performance doesn’t pick up; otherwise, there will be a continued erosion of net asset value, as the fund pays out more than it earns.

Still, I expect the fund to continue delivering modest returns, with low volatility, resulting in very decent risk-adjusted returns for investors. In addition, I expect the fund to hold up better than many of its “growthier” peers in periods of heightened volatility.

CI Signature High Income Fund
Fund company: CI Investments
Fund type: Global Neutral Balanced
FundGrade Rating: D (December)
FundGrade A+ Awards: 2012, 2013, 2015
Style: Tactical
Risk level: Low-Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Geof Marshall since Dec. 2010; Eric Bushell since March 2016
MER: 1.59%
Fund code: CIG686 (Front-end load)
Minimum investment: $500

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 of 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.

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.