| Fund Company | Fidelity Investments Canada |
| Fund Type | Canadian Fixed Income Balanced |
| Rating | $$$$ |
| Style | Tactical |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Geoffrey Stein since April 2011 Derek Young since April 2011 |
| MER | 1.99% Series A, 1.78% Series B |
| Code | FID 294 – Front End Units FID 594 – DSC Units |
| Minimum Investment | $500 |
| Date of Review | September 24, 2012 |
Analysis: Before July 2010, this fund was known as the Fidelity Monthly High Income Fund, which invested primarily in income trusts. Since then, it has been renamed and now has a target asset mix of 70% fixed income and 30% equity. Lead managers Geoffrey Stein and Derek Young have the flexibility to be fairly active around this target asset mix.
They took over the fund last year after the departure of Bob Swanson and have since done a good job. They are up about 7%, which has outpaced both the index and the peer group. Equally impressive, they have been able to keep volatility in check on both an absolute and relative basis.
Like other Fidelity balanced funds, it is managed much like a fund of funds with the lead managers taking responsibility for the broader asset mix and sub managers looking after the underlying funds. As of August 31, it was conservatively positioned, holding 10% in cash, 51% in Canadian bonds, 14% in foreign bonds and 22% in equities.
The fixed income sleeve is very diversified. The managers can invest in any type of fixed income they feel best, based on their view of the current environment. They can invest up to 49% of the fund outside of Canada. Generally, all the U.S. fixed income exposure will be hedged back to Canadian dollars, to help manage currency risk.
Portfolio turnover has been modest, averaging 28% for the past five years. There was a spike higher in 2011, but given the management change, this was to be expected. It pays a variable monthly distribution that has ranged between $0.014 and $0.026, which works out to a modest yield of around 2%.
While the performance numbers have been strong, we do not expect that they will be repeated going forward. With the change to the fund’s mandate, it has a greater emphasis on fixed income which we expect will result in both lower return and volatility from here.
For those looking for a relatively conservative balanced fund, this is one they may want to consider. It may also be a good choice for those moderate or higher risk investors who are looking for a fixed income alternative for a rising rate environment. We would expect that it will outperform a traditional bond fund in both a flat and rising interest rate scenario.