As investors continue their hunt for yield, dividend funds remain a popular choice, and this Fidelity offering is one of the best in the category.
Managed by the team of Geoff Stein and David Wolf, who run the fund much like a fund of funds, making allocations to underlying funds managed by asset class specialists. They try to keep a fairly static asset mix that is in line with the fund’s benchmark, 95% equity and 5% in bonds.
The bond allocation is through buying units in the Fidelity Canadian Bond Fund, which is a core offering that looks somewhat like its index. At the end of March, it had an overweight allocation to corporate bonds, and carried a duration of 7.5 years, which is slightly above the index. It had a yield to maturity of 2.4%, which is above the index.
The equity sleeve is managed by Don Newman who follows a “Growth at a Reasonable Price” philosophy. Using a fundamentally driven, bottom up investment process, he looks for high quality companies that have the potential to maintain and grow their dividends over time. He seeks out companies with strong balance sheets and solid growth prospects that trade below their estimate of its true value. Some factors he considers include the company’s ability to generate free cash flow and evidence of improving earnings.
The equity sleeve is well diversified, typically holding between 60 and 90 names. Given the dividend focus, it will look to have an average yield that is at least 1.5 time that of S&P/TSX Equity Index.
Performance, particularly over the medium term has been excellent, gaining 7.8% annualized for the past three years, compared with just over 5% for the broader Canadian market. More impressive is this has been done with a level of volatility that is well below both the index and the peer group.
It is defensively positioned, and the manager has been reducing exposure to cyclical names in light of expectations of lower economic growth.
I believe this is a great core holding for most investors. I expect it to deliver above average risk adjusted returns over the long term.