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How balanced funds stack up over three years Add to ...

What are we looking for?

Stars among conservative balanced fund offerings.

Balanced funds, which invest in stocks and bonds, come in different stripes depending on their equity exposure. They have become popular in today’s volatile stock markets.

The screen

We ranked the top 15 performers among Canadian fixed-income balanced funds for the three years ended May 31. (These funds can’t hold more than 40 per cent in equities.) We excluded U.S. dollar, segregated, pooled and duplicate versions of funds. We also left out fund families sold only by one mutual dealership, and portfolios of funds.

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What did we find?

Stellar returns from Steadyhand Income.

The funds’ annualized 11.8-per-cent gain outpaced its peers by a wide margin. It also fared better than Canadian stock and bond indexes.

At the end of March, it had 60 per cent in traditional investment-grade bonds, 8 per cent in high-yield bonds, 7 per cent in real estate investment trusts (REITs) and more than 20 per cent in dividend-paying securities.

Over three years, performance has been lifted by key interest rate calls. “We were positioned to benefit from falling interest rates for most of the period up to last summer when we started to become more cautious,” said Brian Eby, a portfolio manager at Connor Clark & Lunn Investment Management Ltd.

The market rebound from the bottom in March, 2009, also helped. Names such as Telus Corp., Brookfield Infrastructure Partners LP and Canadian Apartment Properties REIT contributed to returns. The fund’s low 1-per-cent fee certainly didn’t hurt because fees can eat away at returns.

Steadyhand Income owned two high-yield exchange-traded funds in the first quarter, but it was only to gain quick exposure to the space. “We have since replaced them with individual high yield bonds,” said Mr. Eby, who has run the fund since inception.

Currently, “we like the equity and high yield markets a little bit more than the traditional fixed-income area from a value perspective,” he said, but “we are not expecting great returns because there remains a lot of uncertainty in the markets. At the moment, the big focus is Europe [and its debt crisis].

“We do see interest rates moving somewhat higher … but not substantially,” he said.

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Top Three-Year Returns for Canadian Fixed-Income Balanced Funds to May 31, 2012

Fund MER Assets as at May 31, 2012 (in $ mil.) 3 years to May 31 5 years to May 31 Calendar year returns 2011
Steadyhand Income 1.00 65.5 11.8% 6.8% 7.2%
Standard Life Diversified Income-A 2.46 25.4 9.0% 3.4% 6.7%
Manulife Structured Bond Class 1.70 65.3 7.0% 4.5% 3.9%
Mackenzie Sentinel Income Fund Sr A 1.91 511.3 6.9% 2.2% 3.1%
AGF Fixed Income Plus 2.41 193.6 6.8% 4.6% 5.8%
National Bank Dividend 1.76 985.0 6.3% 0.5% 2.9%
CIBC Balanced Index 1.16 34.2 6.0% 1.2% -0.8%
National Bank Monthly Cons. Income 1.44 117.4 5.5% 2.9% 0.4%
HSBC Monthly Income-I 1.49 816.1 5.5% 2.2% -1.6%
ING DIRECT Streetwise Bal. Income 1.07 n/a 5.4% n/a 4.3%

Source: Lipper

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