IA Clarington Tactical Income Fund

Analysis: Manager Ben Cheng has a great reputation and track record. Before joining Aston Hill he was the lead manager on one of our favourite funds, the CI Signature High Income Fund. With this fund, Ben and his team at Aston Hill, use a team approach that relies heavily on the firm’s research capabilities. The process is best described as “Growth at a Reasonable Price”, which looks for companies that have a strong competitive position, strong balance sheets and a stable management team. When reviewing a company, they review the full capital structure so they understand where the most attractive investment opportunities within that company are, the shares, preferreds, or bonds.

The fund itself is set up as a “best ideas”, “go anywhere” fund. There are no firm asset mix constraints, but the target will be in the 60% equity, 40% fixed income range depending on their outlook. Because it is an income fund, the focus is on generating cash flow from investments, whether it is in the form of income or dividends.

As the name suggests, this fund is tactically managed. They are quite active in their approach and are not afraid to go heavily into cash when they cannot find quality companies that meet their investment criteria.

The current asset mix is 39% Canadian equity and trusts, 19% Canadian bonds, 23% foreign bonds, and 17% in short term bonds and cash. All of the fixed income exposure is in corporate and high yield bonds. Geographically, it is focused in Canada, with nearly 60% invested domestically, followed by the U.S. where 30% of the fund is domiciled. With the focus on yield, it is not surprising to see that the sector exposure is in the high yielding financial and energy sectors.

Looking at the current environment, they are beginning to shift the fund more into equities.

Performance has been decent with a three year return of 6.6% as of January 31, compared to the 5.7% rise in the benchmark during the same period. Shorter term, with equity markets posting decent rallies, it has lagged. Given the underweight position in equities, this is not unexpected. Volatility has been higher than both the index and peer group

The cost is right in line with the category average with an MER of 2.39%. For those looking for yield, it is available in a couple of different series, one that pays out an annualized 6% distribution and the other an 8% yield.

While we like the manager and returns have been decent, we believe that there are other funds available that can deliver comparable or better returns with less volatility.