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Number Cruncher

Fidelity strikes a fine balance among funds Add to ...

What are we looking for?

Stars among Canadian neutral balanced fund offerings. Balanced funds, which invest in stocks and bonds, come in different stripes depending on their equity exposure. (Canadian neutral balanced funds can hold between 40 and 60 per cent in equities.)

The screen

We ranked the top 15 performers for the three years ended May 31. We excluded U.S. dollar, segregated, pooled and duplicate versions of funds. We also left out funds of funds, and those sold by only one mutual-fund dealership.

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What did we find?

Fidelity Monthly Income leading the way – but ranked third in the accompanying table – with an annualized 12.3-per-cent gain.

You need to look under the hood: Both Fidelity Income Allocation and Mackenzie Sentinel Registered Strategic Income posted better returns, but they actually spent part of their three years as income trust equity funds. (That category no longer exists.)

There was a different change at Fidelity Monthly Income. It was run for about two years by Robert Swanson of Fidelity Investments Canada, but he left to join CI Financial Corp. The fund has been co-managed since April, 2011, by Geoff Stein and Derek Young.

The pair have diversified the holdings to now include eight different asset classes with U.S. floating-rate bank loans and emerging market bonds as the newcomers. The fund, which is now nearly 50 per cent invested in foreign securities, also holds three Fidelity mutual funds to gain exposure to asset classes like high-yield bonds.

Over three years, defensive stocks in sectors such as consumer staples, telecommunications and pharmaceuticals have helped performance as well as investments in dividend-paying securities and real estate income trusts.

“Our current outlook is somewhat cautious,” Mr. Stein said. “We continue to favour yield [among equities], which is a way that investors can continue to make money in the short term without taking too much risk.” The U.S. economy is in a “modest growth phase right now,” while China is slowing more rapidly than many believed to be the case, he suggested. “We have a pretty negative view on the medium to longer-term for Europe [with its debt crisis] … . We think that Europe’s problems will continue to recur indefinitely into the future, and that will probably limit the global appetite for taking risk.”

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Top 3-year returns for Canadian neutral balanced funds to May 31, 2012

Fund MER Assets as at May 31 (in $ mil.) 3 years to May 31 5 years to May 31 Calendar year returns 2011 Minimum investment ($)
Fidelity Income Allocation-B 1.79 504.2 14.8% 4.9% 7.2% 500
Mackenzie Sentinel Regd Strat Inc-A 2.32 1,362.0 14.7% 3.4% 4.5% 500
Fidelity Monthly Income-B 2.09 2,831.8 12.3% 4.1% 6.2% 500
Middlefield Income Plus-A 2.00 78.2 11.9% 6.1% 2.8% 1,000
Dynamic Dividend Income 2.24 739.4 10.6% 1.7% 6.7% 500
Redwood Income Strategies Class - X 2.87 n/a 10.0% n/a -2.3% 5,000
Desjardins Quebec Balanced 2.19 223.5 9.6% 2.1% 0.4% 1,000
Stone & Co. Flagship Grwth & Inc AA 2.95 4.6 9.1% 0.9% 1,000
NexGen Cdn Diversif Income-CG 2.83 42.4 8.7% -4.1% 2.4% 2,500
Manulife Monthly High Income Fund 2.18 5,313.4 8.3% 1.0% 1.4% 500

Source: Lipper

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