Dividend funds have been a favourite with investors, and with offerings like this, it’s not hard to see why. Managed by a team lead by Stephen Arpin and Mark Thomson, it invests in a concentrated portfolio of dividend paying, blue-chip stocks that are trading below their estimate of its true worth.
To find these stocks, the team uses a disciplined, bottom up, value focused process that looks for well-managed, highly competitive companies that are trading at significant discounts to what they are really worth. They are conservative in their approach, with valuation metrics lower than the benchmark and peer group, and a yield that is significantly higher.
The sector mix is a lot of what you would expect for a dividend fund. It is overweight in financial names, with four of the five big banks in the top ten. It is also overweight in telecom including Rogers, and Verizon.
The portfolio is concentrated, holding just under 30 stocks. The top ten holdings represent more than half the fund.
They use a very interesting sell discipline. When a stock hits their target price, they will immediately sell one third of the holding. This also triggers a review of the company to see if a higher target price is warranted. If it is, they will hold the stock until the new target price is reached. If it is not warranted, they will sell the position.
Performance has been excellent, finishing in the upper half of the category in eight of the past ten calendar years. The years it was below average were 2005 and 2009 when markets rose sharply, and the conservative positioning caused it to lag. More impressive is it has also done an excellent job at protecting capital, participating in only 36% of the drop in the S&P/TSX Composite, on average, over the past five years.
One area of concern may be the high level of interest rate sensitivity in the portfolio, given the concentration in financials. Still, I believe this can be a great core holding for most investors, offering decent growth potential with modest volatility and strong downside protection.