| Fund Company | AGF Investments |
| Fund Type | Canadian Neutral Balanced |
| Rating | A |
| Style | Blend |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Peter Frost since May 2010 Tristan Sones since May 2010 Tom Nakamura since May 2010 |
| MER | 2.24% |
| Code | AGF 4116 – Front End Units AGF 4216 – DSC Units |
| Minimum Investment | $500 |
Analysis: With interest rates still pretty low by historic standards, many investors continue to look for ways to generate a decent cash flow, while still being able to earn a decent total return and not take on too much risk. This fund may be a good candidate to do just that.
It invests in a mix of stocks and bonds and has the objective of paying a regular cash flow to investors, which is currently targeting 4% per year. It is paying a variable distribution that is currently averaging around 4.4 cents per month, which works out to an annualized yield of just under 5%.
While the target asset mix is set at 50% equity and 50% fixed income, the management team has a lot of flexibility to adjust it based on their outlook. The currently favour equities, which make up 65% of the fund. Around 22% is invested in bonds with the balance in cash.
Equities are managed by Peter Frost using a disciplined process that involves top down quantitative screening and fundamental bottom up company analysis. He looks for companies that have a history of increasing dividends and generating increasing cash flows. Once he narrows his potential buy candidates to a manageable number, he conducts detailed fundamental analysis on each, looking for stable earnings growth, strong balance sheets, a capable management team and a reasonable valuation.
The fixed income sleeve is managed by Tristan Sones and Tom Nakamura. It is a mix of government and corporate bonds, and is actively managed. They have take advantage of the recent bond market selloff to add some duration exposure to the fund. Still, it remains lower than the index.
The portfolio is fairly diversified, holding more than 150 individual positions, with the top ten making up just under 20% of the fund.
Performance, particularly looking out over the past three years has been strong, gaining an annualized 7.2% while the benchmark was up 4.7%. It has held up well in down markets too, experiencing about half the drops of the benchmark. In 2011, the benchmark was negative, and the fund posted a gain of 2.5%. While returns have been above average, volatility has been lower than the index.
I have been reasonably impressed with the fund. I like the managers, their process and their focus on managing risk. Costs are reasonable, with an MER of 2.24%, which is in line with the category average. For investors who are looking for a mix of income, growth and below average risk, I believe that this has the potential to be a great core balanced fund that does just that.