Fund in Focus: Fidelity Canadian Balanced Fund

A history of strong capital protection

Fidelity Canadian Balanced Fund is structured like a fund of funds, with managers Geoff Stein and David Wolf responsible for the asset mix. Underlying asset class pools are managed by dedicated managers. Asset mix is targeted at 50% Canadian equities and 50% fixed income.

While the goal is to maintain the asset mix near the target, managers have some flexibility: Equities can range between 40% and 60%, investment-grade bonds between 30% and 50%, and high-yield between 0% and 20%. At Oct. 31, the portfolio was allocated 50% equity, 41% bond, 7% high yield, and the remainder in cash.

The equity sleeve is managed by Darren Lekkerkerker, who looks for high-quality, well-managed companies with strong balance sheets that are trading below his estimate of fair value. The result is a portfolio of 40 to 50 mid- and large-cap Canadian companies.

The fixed-income sleeve takes a more core-focused approach that uses a blend of top-down macro analysis and fundamentally-driven, bottom-up security selection. Duration is expected to be roughly in line with the benchmark. High-yield exposure is used as a way to generate extra return while reducing interest-rate sensitivity.

Performance has been strong, with a 5-year average annual compounded rate of return of 4.9%, outpacing the peer group average of 3.9%. The fund has had a good year so far, with an above-average 15.0% return year to date to Nov. 30, compared with the 12.7% category average. Volatility has been in line with the category, resulting in slightly better risk-adjusted returns than the peer group.

The managers have done a good job at protecting capital in down markets over the long term, delivering 100% of the upside of the benchmark and participating in only 86% of the downside. With interest rates likely to stay on the low side, the fund is well positioned to deliver strong risk-adjusted returns for investors.

If rates are expected to move sharply higher, I would likely look to an alternative balanced fund that employs a more dynamic asset allocation strategy or a more tactical fixed-income sleeve to help mitigate the potential headwinds. For now, though, this remains a very solid balanced fund offering.

Fidelity Canadian Balanced Fund
Fund Company: Fidelity Investments Canada
Fund Type: Canadian Neutral Balanced
FundGrade Rating: B (November)
FundGrade A+ Awards: 2014, 2015
Style: Large-Cap Blend
Risk Level: Medium
Load Status: Optional
RRSP/RRIF Suitability: Good
Manager: Geoff Stein, David Wolf since February 2015
MER: 2.06%
Fund Code: FID282 (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.