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Portfolio Strategy

Funds for the nervous investor Add to ...

Regrets, you'll have a few if you blindly follow the conservative, take-no-risk approach to investing that's so common these days.

The returns paid by savings accounts, money market funds and term deposits range from roughly 3 per cent down to zero. Need more than that to get where you want to go, financially speaking? Then consider the Portfolio Strategy column's list of 12 mutual funds for frightened investors.

The list was compiled by asking four independent mutual funds analysts to suggest funds for people who are nervous about the stock markets but want higher returns than they're getting in safe investments. Only two restraints were put on the choices - no money market funds and no bond funds. Those categories are where safe money's been sitting since the financial crisis.

These funds on our list can certainly lose money, but in all cases they offer a smoother ride than many of their peers. For more information, consult the fund profiles on Globeinvestor.com.



Dan Hallett, director of asset management for HighView Financial Group:



Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

CI Signature High Income

1.56

17.7

7.5

4.5

2

-21.5

-18.7

Comments: Mr. Hallett cautioned that this fund isn't for ultra conservative investors because it did lose a fairly substantial amount in 2008. But while the mix of stocks, REITs, corporate and high yield bonds is aggressive by balanced fund standards, it's more conservative than a fund investing fully in stocks. Mr. Hallett also notes that the MER for this fund is one of the lowest in its class.



Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Mawer Cdn. Balanced RSP



1.01

7.5

7.5

4.1

2

-16.1

-18.7

Comments: This portfolio offers investors a bit of everything - bonds, cash, domestic and foreign stocks - in a single product at fees around 1 per cent per year, which is strikingly low. Mr. Hallett describes Calgary-based Mawer as a great firm that is competent in all investing categories and has a great track record. This is a fund of funds that holds other Mawer funds in its portfolio.





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Hartford Global Balanced

2.6

2.75

5.94

n/a

0.78

-11.5

-23.4

Comments: Mr. Hallett based this suggestion on the idea that investors are overly focused on Canada. "The tide will shift more in favour of global investing again…at some point…and so many terrific opportunities exist outside of our borders," he said. About 70 per cent of the portfolio is stocks, so this isn't "a tepid bond fund." This fund began in 2007, so it lacks a long track record. However, lead manager Richard Jenkins is a respected fund industry veteran.



David Paterson, Paterson & Associates:



Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

RBC Monthly Income

1.14

8.4

6.5

4.8

2.7

-11.3

-16.2

Comments: Mr. Paterson describes this as a very conservative balanced fund, with a rough 50-50 split between stocks and bonds. Volatility is below average for the Canadian neutral balanced category, and yet returns have consistently come in above average. This fund pays 4.75 cents per unit each month, which works out to a yield of roughly 4.4 per cent. This fund is available only for non-registered accounts.









Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

BMO Guardian Mthly Dividend

2.17

12.4

6.5

2.3

2.7

-20.5

-16.2



Comments: This fund is a rarity in that it invests heavily in preferred shares, which are primarily vehicles for producing dividend income and offer limited capital gains potential. About 60 per cent of the portfolio is in preferreds, with the rest focused on dividend-paying common shares with high yields. Mr. Paterson noted that while this fund holds no bonds, he expects volatility to be in line with balanced funds.





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Fidelity Dividend B

2.04

10.8

8.3

6.5

2.1

-22.7

-26.6



Comments: "This fund will provide investors with more volatility (or a bumpier ride) than my other picks, but I feel it is a good way for conservative investors to gain some exposure to the equity markets," Mr. Paterson said. Holdings are mainly blue-chip Canadian companies such as the big banks and TransCanada Corp. Volatility is below average for Canadian dividend funds and well below average when compared with Canadian equity funds.

David O'Leary, director of fund analysis Morningstar Canada





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Mackenzie Ivy Foreign Equity

2.43

5.4

4.2

3.3

-1.3

-6.7

-30.8



Comments: Mr. O'Leary says this fund can underperform dismally in bull markets, but it holds up remarkably well in bear markets. That was certainly the case in 2008, when it ranked among the top global equity funds by protecting unitholders far better than its peers. This fund holds companies with strong brands and balance sheets, and it uses a buy-and-hold approach that means little portfolio turnover.







Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

IA Clarington Cdn. Balanced

2.37

9.4

6.4

2.7

2.4

-21.5

-21.3



Comments: Mr. O'Leary's inclusion of this fund is based on the fact that it was taken over in mid-2009 by a firm run by Leigh Pullen, formerly with Mawer Investment Management. Mr. Pullen's firm, QV Investors (stands for Quality and Value) runs another fund similar to this and its worst plunge during the financial crisis was 11 per cent.







Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Mutual Discovery

2.62

5.6

4.2

2

-1.3

-26.3

-30.8



Comments: Mr. O'Leary calls this the quintessential deep-value fund, which means it focuses on truly beaten-down stocks with rebound potential. The managers changed last year, but a team approach to running the fund means a consistent approach will be taken. The portfolio has a weighting of about 16 per cent in cash these days, but in the past it has gone as high as 30- to 40-per-cent cash.



Jeff Tjornehoj, research manager for U.S. and Canada Lipper





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

CI Global Managers

2.39

0.9

4.2

1.1

-1.3

-16.7

-30.8



Comments: Mr. Tjornehoj said this fund "moves a little slower" than other global equity funds, a point that is driven home by its comparatively weak performance in the past year. The compensation for investors is lower volatility. "During the 2008 meltdown, it suffered only half the letdown that afflicted its peers," he said. Oddity: Five of its Top 10 holdings are exchange-traded funds, which are a low-cost competitor to mutual funds.





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Dynamic Small Business

2.69

31.2

20.6

14.7

3.7

-18.1

-41.2



Comments: This fund is in the Canadian small- or mid-cap equity category, which means it holds stocks that are considerably more risky than others on this list. But within its niche, Dynamic Small Business has shown much less volatility than its peers. Check out the 2008 performance -- the loss was less than half the category average of 41.2 per cent (this attests to the risks of the small/mid-cap category).





Fund

MER (%)

One-Yr. Rtrn (%)

Peer Avg (%)

5-yr. Rtrn (%)

Peer Avg (%)

2008 rtrn (%)

Peer Avg (%)

Mackenzie Ivy European

2.5

4.8

-1.1

5.1

-0.5

-8.2

-35



Comments: This fund has been holding about 21 per cent of its assets in cash lately, which will provide a cushion in a down market. You can quibble that high cash weightings also drag down returns when the markets are good, but this fund's results over the last 12 months have been much better than average. Like its sister fund, Ivy Foreign Equity, Ivy European stood up comparatively well in 2008.

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