| Fund Company | Sentry Investments |
| Fund Type | Canadian Dividend & Income Equity |
| Rating | A |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | James Dutkiewicz since May 2012 Michael Simpson since August 2008 |
| MER | 2.80% |
| Code | NCE 727 – Front End Units NCE 327 – DSC Units |
| Minimum Investment | $500 |
Analysis: I don’t know that it would have been possible to find a more inopportune time to launch a fund than the August 2008 start of this dividend focused offering. Those who had the stomach to stick around have been rewarded with stellar risk adjusted returns with an annualized return of 12.2% for the three years ending May 31. This outpaced the S&P/TSX Composite Index by more than 800 basis points per year. Even more impressive, the level of volatility has been well below both the category average and the broader market.
To do this, managers Michael Simpson and James Dutkiewicz have built a diversified portfolio of well managed companies with strong balance sheets that are generating high returns on equity, and are paying healthy and growing dividends. While the focus is on Canadian based companies, they can invest up to 30% in global securities. As of April 30, approximately 27% was abroad.
Along with dividend paying equities, the fund will also invest in a mix of corporate, high yield and government bonds. Currently, about 10% is in fixed income, of which the majority is invested in corporate bonds.
The fund’s equity holdings are a good mix of large, mid and small cap stocks. They are significantly underweight in materials, which made up just 6% of the fund as of March 31. This has helped it hold up fairly well considering the recent collapse in commodity prices. They have also been increasing their exposure to industrial names, where they have been finding a number of very attractive opportunities. They expect that economic growth will slow both at home and in the U.S.
The investment process is an active one, with portfolio activity increasing in periods of market volatility, when they can pick up attractive names at discounted prices. For example, in 2009 when markets were coming off their lows, portfolio turnover was more than 140%, yet in 2012, which was relatively calm in comparison, turnover was less than 80%.
It pays investors a monthly distribution of $0.067 per unit, which at current prices works out to a yield of more than 8%. Looking at the yield of the underlying investments, it is unlikely that the fund can sustain the distribution without there being an erosion of capital.
Our biggest knock on this fund is that it is not cheap, with an MER of 2.75%, which is well above the category average. Still, with its focus on both yield and growth, we expect that the fund can continue to deliver strong risk adjusted returns, compared with its peer group.