Sentry Conservative Balanced Income Fund

Analysis: It’s been just over two years since Michael Simpson took the reins of this conservatively managed balanced fund, and performance has been very strong. For the two years ending January 31, it posted an annualized return of 9.6%, handily outpacing its benchmark and peer group.

While Mr. Simpson takes care of the equity sleeve, James Dutckiewicz has managed the fixed income portion of the fund since May 2012.

The managers have a fair amount of flexibility with the asset mix, which can range between 40% and 60% in stocks or bonds. At the end of January, it held approximately 50% in equity, 40% in bonds, and the balance in cash.

The fixed income sleeve is very heavily weighted towards corporate bonds, which make up more than three quarters of the bond exposure. While the focus is on investment grade bonds, about one quarter is invested in high yield bonds. On a whole, the bond sleeve offers investors a higher yield than the DEX Bond Universe, with a lower duration. This positioning will lessen the overall sensitivity to rising interest rates, while providing better returns in a flat or falling yield environment.

The equity portion is managed in a similar way to the highly regarded Sentry Canadian Income Fund, although this fund’s smaller size allows it to take more of an all cap approach. It has companies that range from the very small to the very large. Like other Sentry managed funds, it has been increasing its exposure to the U.S. in recent quarters. At the end of January, nearly 25% of the fund was invested in the U.S.

The fund’s performance has been very strong, particularly on a risk adjusted basis. For the three years ending January 31, it generated an annualized return of 8.71%, finishing well ahead of the pack. Most of this outperformance can be attributed to the fund’s ability to hold its value in falling markets. I certainly don’t expect that it will continue to outperform as strongly as it has going forward, but I do expect it to be well above average on a risk adjusted basis.

It is also a decent option for those looking for cash flow. It pays a monthly distribution of $0.0375 per unit, which works out to an annualized yield of 3.7%.

The MER is 2.25%, which is above the average Canadian Neutral Balanced Fund. The biggest drawback to the fund is that the management team has only been at the helm for a little more than two years. Still, when all things are considered, this looks to be a decent balanced fund for those with a modest appetite for risk.