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Analysis: Managed by the much respected Oscar Belaiche since the fund’s launch, the Dynamic Equity Income Fund aims to provide investors with tax advantaged monthly income from a diversified portfolio of cash flow generating businesses. The manager’s investment process is based on what he calls “Quality at a Reasonable Price”. He focuses on companies that offer investors sustainable cash flow distributions, hold a dominant position in their industry, and are managed by a high quality management team that holds a significant equity stake in the business.
The fund plays very much to the expertise of the management team and tends to be heavily weighted in the oil and gas, and real estate sectors. As of January 31, real estate, energy and utilities made up nearly 64% of the fund. The cash weighting of the fund was just under 10% of total assets. The top 10 holdings make up just under a third of the fund.
The manager is fairly patient in executing his management strategy. For the most recent five year period, portfolio turnover has averaged 20% per year. However, in the past two years, the manager has been very active, and has posted portfolio turnover levels which are closer to 40% per year. Part of this stems from the tactical use of cash, which has been used effectively to help keep overall portfolio volatility in check.
The fund pays investors a monthly distribution of $0.07 per unit. At current prices, this is an annualized yield of approximately 4.7%. In 2011, this distribution was a mix of return of capital and dividend income. The MER is 2.15%, which is slightly higher than the category median.
Performance has been strong, finishing in the first or second quartile in every year, with the exception of 2006. For the year ended February 29, the fund returned 7.2%, while the broader market lost 8.2%. The volatility profile is comparable with the category average and is lower than the broader equity market.
On balance, this is a good fund for investors seeking regular income, with the potential for capital gains over the long term. Oscar Belaiche and his team have done a good job in providing strong total returns, while volatility in check. This is a good fund for investors seeking some level of income with the potential for modest capital gains over the long term.