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Analysis: Clearly one of the hottest investing stories in the past decade has been the emergence of Asia, and particularly China as a global economic powerhouse. While the story has its appeal, the investing climate can be a very daunting and intimidating place, fraught with risk, volatility and uncertainty.
But for those wanting exposure to the region while still looking to keep a lid on volatility, the BMO Guardian Asian Growth and Income Fund is a great way to do just that. The fund, while technically classified as an Asia Pacific Equity Fund is actually more of a balanced fund. As of November 30, the fund held 83% stocks, 14% bonds and 3% in cash.
In building the portfolio, the managers utilize a fundamentally driven, bottom up GARP investment process that considers both the current fundamentals and the long term growth prospects for the company. The managers focus the portfolio on dividend paying shares and U.S. dollar denominated convertible bonds. The focus on dividends is a key element to the manager’s approach in managing overall portfolio volatility. They believe that if a company is growing its dividends, it is highly likely that the company itself is growing. The fund has a dividend yield of 5.5%, which compares nicely to the index, which has a modest 3.1% yield.
Performance for the fund has been strong, outpacing both the index and the fund’s peer group by a significant margin. But even more impressive is that this has been accomplished with a level of volatility that is significantly lower than the peer group.
We were concerned in March, when long time manager Andrew Foster left the firm. However, since his departure, the fund has not missed a beat. Performance continues to tick along nicely and we have not noticed any meaningful increase in portfolio volatility.
The fund is a touch on the high side, with an MER of 2.86%. This is in the upper half of the category. The fund also pays a quarterly distribution which varies from one quarter to another.
From an income yield point of view, this distribution is somewhat negligible, coming in at approximately 0.5%.
This is definitely not to be considered a core fund. Instead, it should be regarded as a fund which can add some incremental return to the portfolio, but also can help to reduce overall portfolio volatility.