CI Cambridge Canadian Asset Allocation Corporate Class

Analysis: The CI Cambridge Canadian Asset Allocation Corporate Class Fund is managed by a very experienced and well respected team that is led by industry heavyweight Alan Radlo. Joining Mr. Radlo on the fund are former head of the Fidelity Asset Allocation Team, Bob Swanson and portfolio manager, Brandon Snow.

The Fund is a tactical balanced fund, which allows the team to be very active in their approach, moving in and out of stocks and bonds as opportunities arise. Portfolio turnover for this fund has been high on a historic basis, averaging more than 100% since the fund’s December 2007 launch.

From an asset mix standpoint, the fund was very conservatively positioned in September, when the manager held 30% in cash. The feeling at the time was that macro factors were likely to cause higher volatility and increased risks to the downside. However, this higher cash position dragged short term performance, with a six month return of 2.4%, which lagged the benchmark and peer group. As of February 29, some of this cash balance has been put to use, with cash currently sitting at 13%. Bond exposure in the fund is currently at 13%, while Canadian equities make up 36%. The balance is invested in global equities.

Recently, the team began implementing a covered call strategy where they would write covered calls on some of the volatile technology stocks in the portfolio and using the proceeds to purchase put options on the market. This strategy works because the option premiums received on the individual stocks is higher than the premiums paid for the puts on the market, thereby providing some additional downside protection to the fund.

The team has recently favoured high yielding equities over traditional fixed income investments. The rationale is that under the current environment, equities are offering more attractive yields than many fixed income investments and still offer some growth potential. While yield is important to equities, a more compelling metric considered is their potential to grow dividends.

For equities, they look for high quality companies that are building economic value. These companies usually have strong and growing earnings, solid balance sheets, excellent management teams, and are trading at reasonable valuations.

The portfolio construction process is very much a bottom up approach. The fund tends to be well diversified, holding in excess of 100 equity names and literally hundreds of bond holdings. As of February 29, the top 10 names made up less than 18% of the fund.

Performance over the medium term has been strong, with a three year return of 15.9%, handily outpacing the fund’s benchmark and peer group. Despite the manager’s emphasis on risk management, volatility for the fund has been higher than both the benchmark and category average.

The cost of the fund is in line with the category median, with an MER of 2.39%.

On balance, this is a solid fund. It is managed by a very experienced team and it offers a decent risk reward profile. Given that, we are rating it $$$.