The Mawer Balanced Fund, which has a fairly low management cost, is managed by Greg Peterson.Laura Leyshon/The Globe and Mail
Suppose you have a sum of money to invest. It could be $50,000 – cash you've built up in your tax-free savings account, for example. Or it could be many times that, proceeds from the sale of your house, perhaps, that you want to invest long term.
You may not have the millions it takes to hire a professional investment counsel, but you want that kind of advice and stewardship. You've read about the low-cost "couch potato" portfolio – baskets of stocks and bonds that track financial indexes – but you don't have the time or inclination for do-it-yourself investing.
You seek the comfort of knowing someone is at the helm, overseeing your hard-earned savings in turbulent financial markets.
The solution is simple. Low-fee, actively managed balanced mutual funds can form the core of most investors' portfolios – and for some people, their entire portfolio.
Low fees are critical. Without them, your fund will lag. Before you stroll down to your local bank branch to buy whatever balanced fund they might have on offer, consider this: Management expense ratios (MERs) of balanced funds at major fund retailers can range from 1.98 per cent to more than 2.5 per cent.
Fortunately, low-cost alternatives are available. Here are two that have performed well and so have grown in popularity with individual investors: the Steadyhand Founders Fund, managed by Tom Bradley, and the Mawer Balanced Fund, managed by Greg Peterson.
The Mawer fund has an MER of 0.96 per cent, the Steadyhand fund 1.34 per cent, a number that will fall as the size and duration of your investment grows.
"Either one of those two is an excellent choice," says Warren MacKenzie, a principal of the investment counsellor HighView Financial Group in Toronto. "Steadyhand has a very disciplined process of rebalancing" – paring winners to buy securities that offer better value, Mr. MacKenzie said in an interview.
Indeed, rebalancing is one of the main appeals of balanced funds because many investors simply don't want to be bothered switching a portion of their investments from one asset class to another, fund managers say. Another feature is the comfort of knowing a professional is watching over your nest egg.
"The balanced fund does a good job of providing peace of mind for clients, the comfort that someone is looking after the fund on your behalf," says Mr. Peterson, a senior portfolio manager at Mawer Investment Management Ltd. of Calgary. "It's a core portfolio that they don't have to worry about."
Mawer is a privately owned investment management firm with more than $25.4-billion in assets under management for both individual and institutional investors. Steadyhand is an innovative, no-load mutual fund company that sells low-fee funds directly to investors.
Both the Mawer and Steadyhand balanced funds have a target allocation of 60 per cent stocks and 40 per cent bonds, although the breakdown will vary with market conditions.
Steadyhand has a minimum purchase of $10,000 a fund (if you invest $50,000, the per-fund minimum is waived), for Mawer it's $50,000. Mawer funds can be bought in smaller denominations from some discount brokers. Mawer funds are available for direct purchase in Ontario and the four Western provinces.
"The main reason we created the Founders Fund is that clients wanted us to manage their money," says Mr. Bradley of Steadyhand. "People have busy careers, children, travel. They wanted someone to look over the whole thing, including asset allocation," he said in an interview. Like the Mawer fund, the Steadyhand fund invests in a handful of the firm's other funds with no extra fee.
"The fund managers do the heavy lifting, I oversee the rebalancing," Mr. Bradley said. "People want my views." Mr. Bradley co-founded Steadyhand Investment Funds of Vancouver in 2007 with Neil Jensen, chief operating officer. Mr. Bradley was a former chief executive officer of Phillips, Hager & North.
While balanced funds are generally regarded as conservative investments, they tend to perform well over the long term because they rein in investors' behaviour, Mr. MacKenzie says. He points to a study by his colleague at HighView, Dan Hallett, that shows investors in balanced funds are less likely to panic and sell when the markets are falling, like they have been recently. The longer holding period spells better returns.
"Not only do balanced-fund investors do better than stock fund investors, but they also do better than investors holding a balanced mix of separate stock and bond funds," Mr. Hallett writes – and that's despite the high fees so many balanced funds charge.
What about performance?
The Steadyhand Founders Fund is fairly new, having come into being in February of 2012. Since then, it has had a cumulative return of 31 per cent, which is equal to an annualized return of 11 per cent, the firm says in its quarterly report. Results are at Sept. 30.
The Mawer Balanced Fund had a 15.48-per-cent return for the year to Sept. 30. It returned 10.63 per cent over five years, 8.06 per cent over 10 years and 8.49 per cent over 20 years.
What's in these funds?
When you buy a balanced fund, you get a blend of stocks, bonds and cash in proportions that shift with the markets. The Mawer and Steadyhand funds have a target stock allocation of roughly 60 per cent. What are these funds holding?
As of Sept. 30, the Steadyhand Founders Fund had 16 per cent of its total assets in cash – higher than normal. Holding so much cash has depressed the fund's yield, but it offers protection against rising interest rates and is a ready source of liquidity in volatile markets, Steadyhand says in its quarterly review. Its stock weighting of 55 per cent is below target, as is the 29-per-cent bond weighting.
The equity part of the portfolio is invested in financial services (21.4 per cent), industrial goods and services (19.9 per cent) and oil and gas (13.4 per cent). Year to date, the fund is up 4.05 per cent.
Holdings for the Mawer Balanced Fund are for the June 30 quarter. They show 63 per cent stocks, 31 per cent fixed income and 6 per cent cash. Top stock investments include financials at 25 per cent, industrials at 15 per cent and, tied for third, consumer discretionary and information technology at 12 per cent each, according to Globe Investor. The fund is up 4.85 per cent year to date.