| Fund Company | AGF Investments Inc. |
| Fund Type | Canadian Equity Balanced |
| Rating | C |
| Style | Mid Cap Value |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Peter Frost since May 2010 Tristan Sones since April 2006 |
| MER | 2.42% |
| Code | AGF 766 – Front End Units AGF 689 – DSC Units |
| Minimum Investment | $500 |
Analysis: Peter Frost took over the lead manager duties of this income focused balanced fund in April of 2010. In this role, he is responsible for setting the tactical asset allocation mix of the fund and managing the equity portion of the fund. Tristan Sones and Tom Nakamura are responsible for the fixed income portion.
The fund has a neutral weighting of 50% equities and 50% fixed income. The manager has a very flexible mandate and will set the asset mix based on the relative income opportunities and the risk/reward characteristics of each asset class. Equities are permitted to range between 20% and 80% of the fund’s assets.
Peter Frost employs a bottom up approach that uses both qualitative and quantitative factors to identify companies that have shown sustainable dividends, strong balance sheets, stable earnings and cash flows and a strong management team.
On the fixed income side of the fund, the managers use a top down approach to determine the appropriate duration strategy. The team looks for bonds that provide an attractive yield relative to the risk. The fund can also invest in non-investment grade credits.
The volatility is on par with an equity fund. While it is considered a balanced fund, investors should think of this more as a hybrid equity fund, given the risk characteristics.
The fund pays out a variable distribution, averaging 6.2 cents per unit, which at current prices is an approximate yield of 7% per year.
Long-term performance has been strong, handily outpacing its peer group with first quartile performance in all time frames, except for 2008 when the fund dramatically underperformed. It underperformed again in 2012, gaining 5.6% compared to a 6.4% gain in the benchmark. This can largely be attributed to the fund’s overweight exposure to equities, which they believe are “comparatively attractive.”
Fixed income exposure is defensively positioned with shorter than duration exposure, as they believe that the risks of rising rates outweigh any potential gains that may be generated in the short term from a higher duration.
With the equity exposure, currently at 65% of the fund, we expect that volatility will remain higher than its peer group. They will continue to use this volatility as an opportunity to add to the portfolio, by buying quality names at attractive valuations. This should prove beneficial over the longer term, but may cause some pain in the short term.
We like this fund for longer-term investors looking for income. Conservative investors may want to look elsewhere for a fund with a lower volatility profile.