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Analysis: At just under $8 billion in assets, the RBC Monthly Income Fund ranks as one of the largest funds in the country. Despite its hulking size, the fund continues to reward investors with steady, stable performance. Despite a blip in 2009 when the fund finished in the third quartile, the fund has consistently been in the upper quartiles. Volatility has also been below both the fund’s benchmark and the broader category average. Even during the credit crisis of 2007 – 2009, the fund dropped approximately 19%, while the benchmark fell by more than 28%.
This is a conservatively managed Canadian balanced fund that has a target asset mix of 55% fixed income, 40% Canadian equity and 5% cash. The asset mix decisions are made by the RBC Investment Policy Committee, while the individual security selection calls are made by the lead managers; Jennifer McClelland who focuses on Canadian equities, and Suzanne Gaynor who manages the fund’s bond sleeve.
As of October 31, the fund held 48% fixed income and nearly 48% in equities. Given the likelihood of rising rates, this positioning makes sense, as the upside to fixed income investments appears very limited. However the downside for investors is that this positioning may result in slightly elevated levels of volatility. Within the equity component, the focus is on high quality, dividend paying large caps and REITs. Not surprisingly, the equity sleeve is heavily weighted towards financials, which currently make up 41% of the equities. Given the conservative nature of this fund, combined with its size, we don’t envision the managers making any dramatic shifts to the asset mix. Most changes will likely occur at a very deliberate pace.
The fund pays a monthly distribution of $0.0475 per month. At current prices, this works out to be a distribution yield of approximately 4.5%. Given the current level of bond yields and the dividend yield of the fund, it is a possibility that there may be slight capital erosion if the managers are unable to deliver investment return.
The Fund is our top pick for investors with a medium risk tolerance who are seeking a mix of capital growth and a modest income distribution from their investment.
The Fund is not available in registered plans such as RRSPs, RRIFs, or TFSAs.