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Analysis: Like the name suggests, this Canadian Balanced Fund pays investors a monthly distribution of $0.06 per unit per month. Based on the December 19 price of $12.55 per unit, this works out to an annual distribution yield of approximately 5.8%. While this yield certainly looks attractive, one has to wonder how sustainable it is going forward, given the low interest rate environment and the dividend yield on stocks within the portfolio.
The manager David Graham took over the lead manager role in December 2007 after the departure of long time manager Stephen Gerring. In managing the fund, Mr. Graham uses a combination top down, bottom up approach. He will use a top down, macro economic analysis to set the broader asset mix of the fund, and then will employ a bottom up security selection process. In selecting stocks for the portfolio, Mr. Graham tends to favour attractively valued large cap names. For the fixed income portion of the fund, the CIBC fixed income team makes the calls.
Performance since Mr. Graham took over has been middle of the road, finishing second or third quartile in most time frames with the exception of 2010, when the fund finished in the first quartile. 2009 was not a good year as the manager was heavily weighted in fixed income, missing out on a good chunk of the equity rally that began in March of that year. The fund is relatively conservatively managed, boasting a level of volatility that is below both the index and category average.
Currently, the fund is just over 60% in equity, 20% in corporate bonds and 9% in Canadian government bonds. The equity exposure, much like the Canadian market, is heavily concentrated in financial services, energy and materials. Combined, those three sectors make up more than three quarters of the equity sleeve of the fund. Given this mix, we would expect that volatility may trend a bit higher going forward.
Costs for the fund are reasonable, with an MER of 1.48%, well below the category average, and in line with other monthly income funds offered by the other banks.
On balance, it is our opinion that there are better monthly income funds available to investors.