| Fund Company | BMO Investments Inc. |
| Fund Type | Canadian Neutral Balanced |
| Rating | D |
| Style | Blend |
| Risk Level | Medium |
| Load Status | No Load |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Mark McMahon since June 2006 Philip Harrington since March 2012 Lutz Zeitler since March 2012 |
| MER | 2.25% |
| Code | BMO 149 |
| Minimum Investment | $500 |
Analysis: This Canadian balanced fund is designed to provide investors with a fixed monthly distribution and invests in a diversified portfolio of Canadian and international bonds and equities. Currently, it is tilted towards equities, holding 26% in bonds and 5% in cash, with the balance invested in equities. Canadian equities are 31% of the fund, with the balance invested abroad.
Within the Canadian equity component, it is conservatively positioned. The managers are focusing on high quality companies with a history of growing their dividends. They remain biased towards the traditional defensive, yield generating sectors such as financials, telecom, and utilities. They are less exposed to the more volatile energy, materials and energy sectors. The fixed income sleeve of the fund is biased towards corporate bonds for their higher yield. There is also exposure to infrastructure and high yield through the BMO Global Infrastructure Fund and the BMO U.S. High Yield Bond Fund, which combined, make up more than 20% of the fund.
With its focus on generating cash flow, the fund has historically paid out a very high distribution. Until recently, it paid $0.045 per unit, which worked out to an annualized yield of 8.5%. Given the total return profile of the fund, this was clearly unsustainable. BMO realized this and cut the distribution dramatically, bringing it down to a more manageable $0.025 per month, which is a yield of approximately 4.6%.
Shorter term performance has been strong, gaining 10.4% in the past twelve months. During the same period, its balanced benchmark rose by 4.4%. Volatility is higher than the category average and given the fund’s overweight exposure to equities, we expect that to continue. We also expect that performance should continue to improve given the higher equity exposure and the 10% weighting in infrastructure.
Cost is a touch on the high side, with an MER of 2.25%. For a no load fund, that should be lower in our opinion.
Despite the improved performance of this fund, we would be reluctant to recommend it at this point in time. It is our opinion that there are stronger Canadian balanced funds available.