What we're looking at
Weakness in resource stocks is one of the biggest reasons why Canada's stock market has struggled this year. Together, the energy and materials sectors account for close to half of the benchmark S&P/TSX composite index. Is it possible to invest in the Canadian market without so much exposure to commodities? Yes, and Canadian dividend funds are a good place to look.
Our screen
All dividend funds have been ranked here by their three-year beta, which is a measurement of their volatility in comparison with the S&P/TSX composite index. The index has a beta of 1.0 - anything lower than that shows a fund is less volatile than the index. Also displayed here is each fund's three-year return and three-year quartile ranking. The quartile numbers rank a fund's returns against others in the category. First quartile is best, fourth is worst.
What we found
Commodity stocks are highly volatile, so you'd expect the low-beta funds in our screen to have less exposure to energy and materials than the index. That's exactly what you get with the likes of CI Signature Dividend, with only 8.7 per cent of its assets in energy at April 30 (materials stocks are not listed by this fund in its latest portfolio report, but they may be present in very small amounts).
CI Signature Dividend shows how the low-volatility dividend fund can offer a way to successfully invest in the Canadian market without heavy commodity exposure. Its annualized three-year return is 5.3 per cent, compared with 3.1 per cent for the S&P/TSX composite index, with dividends included.
Two things to be aware of if you're looking at dividend funds: Don't just assume a low level of energy and materials exposure (check the fund profiles on Globeinvestor.com) and note the heavy helping of financial shares that many of these funds have. Financial stocks are a fair bit less twitchy than commodity stocks, but they did fall hard in 2008-09.
Rob Carrick