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In the hunt for yield, Ryan Fitzgerald will go to far-flung places.
As a member of the team running CI Signature High Income Fund, he went "down under" in 2010-11 to buy a sizable position in mall operator Westfield Group, a real estate investment trust (REIT), and Telstra Corp., a telecommunications company. Because Australians were not yet focused on high-yielding income securities in their own country at that time, he was able to snap up these securities at attractive prices.
"They had no use for a REIT," recalls the 38-year-old fund manager at Toronto-based CI Investments. "Australian investors were not as enamoured with yield [then] as in Canada because short-term interest rates were very high. The retail investor could go to the bank and get a term deposit at 6 per cent. …These securities were abandoned, and we were able to get blue-chip companies at bargain prices."
The flexibility to roam the world, and diversify among high-yielding asset classes, ranging from high-yield bonds to REITS and dividend-paying stocks, gives the fund an advantage compared with many income-oriented funds, said Mr. Fitzgerald, who focuses on REITs and companies that were former income trusts.
CI Signature High Income fund won a Lipper Award for three, five and 10 years in the global neutral balanced category. It gained an annualized return of 11.8 per cent for the three years ended last Oct. 31. The fund's team also includes Geof Marshall, who oversees the high-yield bonds, and Joe D'Angelo, who picks securities in the industrial and infrastructure sectors.
The fund was first launched in 1996 as the BPI High Income Fund and managed by Eric Bushell, who is now chief investment officer of CI's Signature fund family. (The fund, whose name was changed in 2000, was part of the fund lineup at BPI Financial Corp., which was acquired in 1999 by CI's parent.)
Mr. Fitzgerald began his career at CI Investments in 1998 just after graduating with a commerce degree from St. Mary's University in Halifax. He climbed the ranks to portfolio manager following stints in client service, sales and as an income trust analyst working for the fund in 2004.
The fund, which has a monthly distribution, is invested mostly in high-yield bonds on the fixed-income side, while the equity portion has consisted mainly of higher-yielding equities like the former income trusts, REITS, utilities and infrastructure companies. They have done "phenomenally well," but are now getting pricey, he said.
Last summer, the fund began slowly to rotate from its traditional asset classes into more general high-dividend-paying securities such as the Canadian banks and also Royal Dutch Shell (after oil stocks took a beating,) he said. "They are somewhat lower yielding than some of the traditional parts of the portfolio. We might be talking about a 4-per-cent yield instead of 6 per cent, which you would get from high-yield bonds."
REITs and real estate companies make up about 14 per cent of the fund. "The North American real estate sector has become fairly expensive, but I think that the valuations are well underpinned because of the global demand for yield, and demand for inflation-linked cash flow that is provided by hard assets," he said.
"I think that story is with us for a long time to come, and the distributions and dividends of the vast majority of REITs and real estate companies are very safe," he added. "That will be your return going forward for the most part. The capital gains that we have experienced in the past are probably for the most part behind us … But the U.S. is a much larger market so you sometimes have some unique stories there."