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NUMBER CRUNCHER

Neutral balanced funds: U.S. exposure tips Sentry into top spot Add to ...

What are we looking for?

The top-performing Canadian neutral balanced fund offerings. Funds in this category invest in stocks and bonds, and they must have between 40 and 60 per cent of assets invested in equity securities.

Balanced funds have been attractive to investors looking to even out some of the volatility in the markets.

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The screen

We ranked the top 15 performers for the three years ended April 30. U.S. dollar, segregated, pooled and duplicate versions of funds were excluded.

Funds of funds were also excluded, along with those sold by only one mutual-fund dealership.

What did we find?

Sentry’s Conservative Balanced Income fund topped the chart with an annualized 9.5-per-cent gain. But while it is a domestic fund, the investments outside of Canada – primarily in the United States – have been major drivers of performance over the past three years.

Non-traditional, smaller-cap, U.S.-based assets have been winners for the fund’s portfolio. “While they haven’t been massive home runs, they’ve all been good, good performers, and much better than the Canadian landscape,” said portfolio manager James Dutkiewicz, pointing to the S&P’s outperformance of the TSX in recent years. “We have been close to the max in foreign credit and foreign equities as well, to take advantage of this better risk-adjusted, more diverse opportunity set.”

The same thesis has been profitable for the fund in the past year as well. The fund posted gains of 8.2 per cent in the year ended April 30, which Mr. Dutkiewicz attributed to the fund’s equity and fixed income holdings outside of Canada. The portfolio was underweight in Canadian energy, bank and resource names compared to the rest of its peer group, he said. On the other hand, U.S. banks such as Wells Fargo & Co. have performed well.

Overall asset allocation is skewed toward equities, but the fixed-income portion of the fund’s holdings were overweight credit, which also helped performance. “Even though government bond yields didn’t come down much, corporate spreads and bonds significantly outperformed,” said Mr. Dutkiewicz, who is head of the fixed-income investment team at Sentry. “We even had 10 to 15 per cent of the names in the credit book [that] were in high-yield, or crossover credit, so that added to performance.”

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Canadian Neutral Balanced Funds - three years to April 30

Fund 3-yr
% rtn
(Apr. 30)
1-yr
% rtn
(Apr. 30)
5-yr
% rtn
(Apr. 30)
Sentry Conservative Balanced Income 9.50% 8.20%
Mackenzie Sentinel Strategic Income 8.10% 6.90% 6.30%
Manulife Monthly High Income Fund 7.40% 12.10% 4.50%
Bissett Focus Balanced-A 7.40% 10.10%
Dynamic Dividend Income 7.30% 6.90% 4.50%
Desjardins Quebec Balanced 6.90% 7.80% 5.00%
IA Clarington Canadian Balanced 6.90% 10.30% 3.50%
RBC Monthly Income 6.20% 6.50% 4.50%
IA Clarington Strategic Income-Y 6.10% 9.30% 2.80%
Fidelity Canadian Balanced-B 5.90% 6.70% 3.90%

Source: Lipper

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