Manulife Monthly High Income Fund

Analysis: Managed by the team of Alan Wicks and Jonathan Popper, this fund invests in a mix of Canadian fixed-income and large-cap Canadian equity securities. It has duel investment objectives; to preserve capital and maintain a regular distribution. The distribution is currently set at $0.06 per unit per month, which at current prices works out to an annualized yield of around 5%.

At the end of March, the asset mix was nearly 20% cash, 20% bonds, and the rest invested in equities, which were pretty much equally split between Canada and the U.S. The fixed income sleeve is invested entirely in investment grade bonds. To better position the fund for higher rates, it is carrying a fairly high level of cash. This will help protect against rising rates, but may drag returns while rates remain flat.

The stock selection process is very much a fundamentally driven, bottom up approach. It also has a bit of a value tilt to it, where the managers are looking for funds that are undervalued, relative to their estimate of growth potential.

They also pay a great deal of attention to the potential downside of a stocks, and try to build the portfolio in such a way to maximize the upside, while minimizing the downside. This process seems to have worked. The fund has consistently seen more upside than downside. It also has a standard deviation that is below the category average.

Performance has been very strong, with a five year annualized return of 12.3%, which has outpaced the benchmark and most of its peer group.

I like this fund. It offers a decent risk reward profile. It has delivered above average returns with below average risk. However, with its focus on income, it tends to be fairly sensitive to movements in interest rates, so it is unlikely that it will be able to deliver the same type of returns as we move into a rising rate environment. Still, over the long term, I expect that it will continue to deliver above average returns with below average risk.