Please download the full report here.
During the third quarter, we made a number of changes to our Recommended List of Funds. Five funds were removed from our list, while three new funds were added.
The changes are:
Deletions
PH & N High Yield Bond Fund – It is important to point out that this fund is not being removed for performance reasons. The fund is being removed as it has been closed to new investors since November of last year. Therefore, we removed the fund from our list.
Dynamic Value Fund of Canada – This had long been one of our favourite Canadian equity funds which had been delivering strong risk adjusted performance for investors. Over the last couple of quarters, we began to notice that the risk adjusted performance had begun to lag. While had been concerned, it was the resignation of David Taylor which served as the catalyst for the removal of the fund from our list. Mr. Taylor has been replaced by Cecilia Mo, who managed a number of funds at Fidelity, where she amassed a respectable track record. However, it is important to note that while the track record is commendable, most of it was achieved in mandates much different than for this fund. There are also significant style differences between Ms. Mo and Mr. Taylor. The bottom line is that there will be significant turnover in this fund in the near future and we expect that there will be a change to the risk reward profile of the fund. Therefore, we are removing the fund from our list until we can gain a level of comfort with Ms. Mo in this new mandate, and the fund transition has been completed.
Invesco Canadian Premier Fund – This is a Canadian equity fund that has been on our Recommended List for a couple of years. However, in the past few quarters, we have been concerned about the performance of this fund, both on an absolute and risk adjusted basis. We weren’t seeing any meaningful improvement in the risk reward profile of the fund and felt that it was time to remove it from our list.
AGF Canadian Asset Allocation – This is a Canadian balanced fund that has been on our list for a number of years. It was added to the list while it was being managed by the previous manager, Christine Hughes, who left AGF last year for personal reasons. We had some concerns about the fund after her departure and had the opportunity to meet with the new manager, Michael White earlier this year. Mr. White was generous with his time and fully explained his style, philosophy, and process to us. His approach is very sound, however, it is very bearish and the conservative positioning of the fund was not delivering strong risk adjusted returns for investors. We had believed that the fund would perform better in volatile markets, and while it did, it did not perform as expected. Given this, combined with the availability of alternatives, we removed the fund from our Recommended List.
CI Harbour Growth & Income – This is a Canadian balanced fund that is managed by respected manager Gerry Coleman. However, the performance for this fund, both on a risk adjusted and absolute basis has been causing some concern for us for the past two quarters. Given the availability of alternatives, we felt it prudent to remove this fund from our Recommended List at this point in time.
Additions
IA Clarington Canadian Conservative Equity – The Fund has been managed by George Frazer and his team at Leon Frazer & Associates Investment Counsel since 1950 using a very value focused approach. The team looks for companies with a demonstrated history of growing dividends paid to investors over time based on their belief that “dividend increases drive growth in both income and capital and offer capital protection in volatile markets.” The team also looks for a history of strong earnings, cash flows, and quality management. Valuation is also a concern as the team focuses only on the stocks that they feel are reasonably priced based on their estimate of value and the growth prospects. The team focuses on downside protection and has been fairly successful. During the period between July 2008 and February 2009, the S&P/TSX Composite Index Total Return Index plunged by more than 57%, while the IA Clarington Canadian Conservative Equity Fund was down by 32%. If there is a drawback to a fund such as this it is that it will lag in up markets. According to IA Clarington, the upside capture ratio of this fund is 65%, which means that on average, if the S&P/TSX Composite is up 1%, this fund will only be up 0.65%. Given our expectation of continued high volatility, combined with the manager’s focus on dividends, we believe that this fund will continue to deliver strong risk adjusted returns going forward.
Signature High Income – This is a global neutral balanced fund that is managed by CI’s Signature Global Advisors. The managers employ a top down economic overview which helps to determine the fund’s asset mix and sector breakdown. Once that is set, the team utilizes a bottom up security selection process to choose the investments in the fund. The team can be very active in the implementation of their investment process. The fund invests in a mix of high yielding equity securities and corporate bonds. Performance of the fund has been strong, delivering solid risk adjusted and absolute return numbers for investors. Another key feature of this fund is the fact that it’s MER is 1.60%, which is well below much of its peer group.
AGF Monthly High Income – This is a Canadian balanced fund that is managed by Peter Frost and Tristan Sones of AGF. Mr. Sones has managed this fund since 2006 while Mr. Frost joined the team managing the fund in May of 2010. This fund has a neutral asset mix of 50% equities and 50% bonds. However, the manager has significant leeway and can fluctuate between the target asset mix, plus or minus 30%. In other words, the minimum equity exposure is 20% and the maximum is 80%. This allows the manger to be flexible in their approach. In managing the equity portion of the fund, Peter Frost uses a bottom up quantitative and qualitative approach which focuses on companies that have an above average dividend payout. The manger conducts fundamental analysis to ensure that the dividend payments are sustainable and looks for other criteria such as a strong balance sheet, stable earnings and strong management. For the fixed income portion of the fund, Tristan Sones uses a top down fundamental approach to determine credit mix and duration, combined with a bottom up credit analysis on individual bonds. The risk reward profile of this fund is very compelling, Given our expectation of continued high volatility, combined with the manager’s focus on dividends, we believe that this fund will continue to deliver strong risk adjusted returns going forward.
You can download the full Recommended List of Funds report here