| Fund Company | Phillips, Hager & North Investment Management |
| Fund Type | Canadian Neutral Balanced |
| Rating | B |
| Style | Blend |
| Risk Level | Low Medium |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Scott Lysakowski since December 2009 Scott Lamont since December 2009 |
| MER | 1.12% |
| Code | PHN 660 – No Load Units PHN 6660 – Front End Units |
| Minimum Investment | $5,000 |
Analysis: As the name suggests this fund provides investors with a monthly income which comes in the form of a distribution. The current distribution was bumped up to $0.045 per unit in January, which gives an annualized yield of approximately 5.0%.
To generate this income, the fund invests in a well diversified portfolio with a target asset mix of 50% fixed income and 50% equities. The managers do have some flexibility around these targets, based on their outlook of the market environment. The asset mix can range between 40% to 60% fixed income at any given time. As of January 31, it was pretty much on target, holding 49% in equities, 47% in bonds and preferreds with the balance in cash.
The equity portion is invested in predominantly income producing equities, such as dividend paying common stocks, income trusts. Not surprisingly, the top names in the equity component are big, blue chip names like the banks, TELUS, and Enbridge. More than half is invested in financials and energy.
The fixed income portion invests in a mix of government bonds, corporate bonds, and preferreds. Currently, about half of the bond exposure is in corporate bonds. The credit quality is high, with all the bond holdings in investment grade debt. It gets some exposure to high yield bonds through holdings in the RBC High Yield Bond Fund and the PH&N High Yield Bond Fund.
Performance has been strong, gaining 7.7% for the three years ending January 31, handily outpacing both the benchmark and the peer group. Volatility has been quite modest, with a standard deviation that has been lower than the index and peer group.
Looking ahead, we believe that it may be a challenge for the managers to continue to deliver returns at the level they have, given that they must maintain at least a 40% weighting in fixed income. They have positioned the fixed income portion quite defensively, with a duration that is shorter than the benchmark and significant exposure to corporate and high yield bonds, which will help provide better downside protection. The equity focus on dividend payers will likely result in underperformance in hot markets, but will provide stable, decent risk adjusted returns over the long term.
The cost is very reasonable, with an MER of 1.12% for the Series D units. However, if you must buy the units through a dealer, cost becomes less attractive with an MER of 1.94%, which while still in the lower half of the category, is a bit pricey in our opinion.