Fund in Focus: Fidelity Dividend Fund

Defensive strategy lowers volatility but dampens returns

The Fidelity Dividend Fund is managed overall by Geoff Stein and David Wolf. The neutral asset mix is 95% equities and 5% bonds, and the mix is fairly static.

The fixed-income sleeve, sub-managed by Sri Tella, is a core-focused approach that blends top-down macro analysis with bottom-up security selection.

Equities are sub-managed by Don Newman using a fundamental, bottom-up “growth-at-a-reasonable-price” approach that looks for companies with the potential to maintain and grow their dividends over time. Common characteristics include strong free cash flow generation and improving earnings power. Quality of management is also considered.

Sector mix looks much like you’d expect, with heavier exposure to financials, energy, utilities, and communications services. Top holdings as of Sept. 30 included Toronto-Dominion Bank, Royal Bank of Canada, Fortis, Enbridge, and TC Energy. The top 10 holdings make up 34% of the fund’s value.

Performance over the past year to Sept. 30 has been solid, posting a loss of 2.1% compared with a loss of 7.2% for category average. The defensive positioning of dividends has helped cushion the fund in the recent volatile markets. Over the past three and five years, the fund has trailed, as have many dividend strategies, as investors chased growth.

In addition, the fund has also been carrying higher levels of cash (19% at the end of August), which has also muted overall gains. However, the high cash weighting is expected to act as a buffer in the current higher-volatility environment and provide the means to take advantage of attractive opportunities as the market stabilizes.

The fund’s defensive positioning has also helped keep volatility in check. With an average 3-year standard deviation of 8.3, the fund’s volatility is significantly lower than both the index and category. It has also generally done an excellent job protecting capital in down markets.

As we continue to work through this intensely more volatile period for investors, this defensive dividend-focused offering may be worth considering for more risk-averse portfolios.

Fidelity Dividend Fund
Fund company: Fidelity Investments Canada
Fund type: Canadian Dividend & Equity Income
FundGrade: B
FundGrade A+® Awards: 2015, 2016
Style: Large Cap Value
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Excellent
Managers: Geoff Stein since April 2011; David Wolf since March 2014
MER: 2.09% (Series B, front-end load)
Fund code: FID221 (Series B, front-end load), other units available
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.