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Analysis: Since the end of income trusts, this fund has morphed into a high yielding dividend income fund. Managed by Michael Simpson and Aubrey Hearn, the fund invests in a mix of large and mid cap income producing securities like common equity, fixed income and REITs.
The fund pays investors a monthly distribution of $0.0775 per unit, which works out to an annualized yield of 5.8%, using February 29 prices. In 2011, nearly two thirds of the total distribution paid to investors was treated as return of capital for tax purposes, which increases the tax efficiency of the distributions.
The fund is conservatively managed and will typically hold between 50 and 60 names. As of December 31, it held 55 names with the top 10 making up 46% of the fund. Not surprisingly, the fund is heavily weighted towards energy, which makes up more than 20% of the portfolio, and REITs which are nearly 18%. The underlying yield of the investments in the portfolio was 3.9%.
In recent months, the managers have taken profits in the utilities and infrastructure investments held in the fund. With the cash, they took some strategic positions inU.S.based names in the industrial sector, and added to their Canadian healthcare exposure. They have also said that they feel that some names in the oil sector don’t reflect the true price of the commodity. As a result, they have added to their energy exposure.
Performance has been strong. For the five years ending February 29, the fund returned 7.4% while the S&P/TSX Composite returned 2.2%. The fund has finished in the first quartile in every calendar year since inception, except for 2006, when it lagged the broader market by 13%, ending in the fourth quartile.
Volatility is lower than both the category average and the broader market. The biggest drawback to this fund is its MER, which at 2.70% is significantly higher than the category average.
On balance, this is a good fund for investors seeking regular income, with the potential for capital gains over the long term. The experienced management team has done a tremendous job navigating the conversion from an income trust fund.