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What are we looking for?

Tactical balanced funds that have outperformed peers.

The screen

With interest rates continuing on at historic lows, investors may find it a struggle not only to derive returns from bonds, but also in managing the overall asset mix for an eventual rise in interest rates. For investors interested in seeking help with this, today I look to the category of tactical balanced funds, and those that have outperformed their peers over time. Tactical balanced funds hold a dynamic mix between fixed income and equities, and also allow the manager to make discretionary changes to the overall asset mix as appropriate.

To find these products, I used Morningstar Direct to screen across mutual funds from Canadian-domiciled fund companies that fit within this category, and have also received a Morningstar rating (also known as the “star rating”) of four stars or better. As a reminder, the star rating is a comparison of a fund’s risk-adjusted return after fees against other funds in the same category. Although the rating is a backward-looking measure, our studies have shown that the star rating has some staying power. On aggregate, funds that have received five stars continue to outperform funds that receive one star, after receiving the rating. Only the oldest share class of each fund was considered, along with a required investment of less than $1,000.

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More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter.

'Tactical’ funds that offer help for investors struggling with asset mix

FundMER (%)Morningstar Rating OverallYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)15Y Ann. Ttl. Rtn. (%)Inception DateCdn. Eqty. (%)U.S. Eqty. (%)Int'l Eqty. (%)Fixed Inc. (%)Cash (%)Other (%)
Dynamic Strategic Yield Sr F1.034 Stars8.212.66.55.76.6n/a2/27/200920.029.02.914.824.78.6
Signature Diversified Yield F1.234 Stars10.519.06.85.76.9n/a2/11/20116.833.819.423.69.76.6
Fidelity Tactical Strategies Series F1.175 Stars3.012.47.17.57.7n/a4/4/20112.432.929.424.04.27.1
TD Tactical Monthly Income F0.834 Stars9.216.88.27.8n/an/a9/12/201230.929.73.129.10.96.3
Dynamic Asset Allocation Private Pool F0.985 Stars6.015.79.89.5n/an/a6/6/201418.916.420.032.98.73.1
Purpose Tactical Asset Allocation Sr F0.815 Stars9.515.310.68.4n/an/a11/16/201552.829.71.013.12.60.8
Meritage Tactical ETF Balanced Port F0.774 Stars7.115.37.36.4n/an/a3/1/201622.820.124.528.80.33.5
BMO Tactical Global Growth ETF F0.674 Stars7.14.33.96.2n/an/a4/28/20168.753.132.80.05.5-0.1
Desjardins Global Balanced Strat Inc F1.044 Stars6.912.87.37.1n/an/a6/14/20161.735.429.526.25.91.3
Scotia Diversified Balanced A1.954 Stars9.719.19.28.37.66.14/30/198923.128.418.421.44.04.7

Source: Morningstar Direct. Data as of July 27

What we found

The funds that meet the above requirement are listed in the accompanying table alongside their rating, performance, management expense ratios and inception dates. Also displayed is the asset allocation of each fund. Note that the asset allocations vary dramatically, as is the nature of this category of funds. The “other” asset class often refers to derivatives exposure. Most funds listed here are fee-based share classes, which are sold through a fee-based adviser. Note that the MERs for fee-based share classes do not include the management fee charged separately by the adviser and can be dependent on the amount of assets you have to invest.

This article does not constitute financial advice. It is always recommended to speak with a financial adviser or professional before purchasing any of the products listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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