Fund in Focus: PH&N Balanced Fund
FundGrade A+® Award winner
The PH&N Balanced Fund from RBC has an asset mix of 32% fixed income, 19% Canadian equities, 25% U.S. equities, 18% other foreign equities, 3% in cash (as of June 30). Manager Sarah Riopelle, who has steered the fund since April 2015, has some flexibility in setting the asset mix and will use a top-down macro analysis to understand the broader economic and market environment and determine the most appropriate asset mix for the outlook. The strategy has proven successful. The fund is a strong, top-quartile performer, a two-time FundGrade A+ Award winner, and currently carries a monthly FundGrade of B for June.
At the end of June, the fund’s fixed-income weighting consisted mainly of its holding in the PH&N Bond Fund (29%) and a small foreign bond holding through RBC Global Bond Fund (4%). Credit quality is high with 69% of bond holdings rated A or higher. The bond portfolio currently shows an average term to maturity of 10.6 years, and a duration of 7.9 years. Yield to maturity is 2%.
With the manager’s negative outlook for bond yields, the fund is overweight equities, through its holdings of RBC Global Equity Focus Fund (29%), PH&N Canadian Equity Underlying Fund II (15%), and RBC QUBE Global Equity Fund (10%). It is underweight emerging markets with a small 4% allocation to RBC Emerging Markets Equity Fund.
Longer-term performance has been solid with the Series D delivering first-quartile 3-year and 5-year average annual compounded rates of returns of 6.5% and 6.2% respectively, to June 30, doubling the category average. The fund has recovered nicely since the March pandemic meltdown, posting a 3-month return of 12.6% to the end of June, compared with the category average of 11.6%.
Looking at the longer term view in their most recent commentary, the managers believe that “stocks will outperform bonds, and that the current low yields on government bonds will not provide the income or risk-diversifying properties of the past 40 years.”
The fund’s equity growth tilt has helped boost returns over the past couple of years, but with a 22.8 forward price-earning ratio at June 20, valuation levels look a bit rich compared with the index and peer group, which may be a headwind in coming quarters. However, the fund’s active-management style can help mitigate the risk.
With a volatility level (3-year average standard deviation of 8.9) that is below the category median (10.4), the fund has done an excellent job generating returns in rising markets, posting up-capture ratios well above 100%, outpacing the benchmark when markets rally higher. However, it has participated in more of the downside, performing worse than the benchmark when markets fall.
Costs are reasonable with an MER of 0.88% for the Series D no-load units. Overall, if you remain positive on the outlook for the markets and want to invest with RBC, this may be a great fund to consider. If you are worried that we may see more market weakness or volatility, you may want to find another, more conservatively positioned balanced offering.
PH&N Balanced Fund
Fund company: RBC Global Asset Management
Fund category: Canadian Neutral Balanced
FundGrade: B (June)
FundGrade A+ Award: 2018, 2019
Style: Top-down macro; fund of funds
Risk level: Low to Medium
Load status: Optional
Manager: Sarah Riopelle since April 2015
MER: 0.88% (Series D)
Fund code: RBF1350 (Series D, no-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.
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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.