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number cruncher

What are we looking for?

Highly rated Canadian or global neutral balanced funds.

The screen

Market headlines have spent most of the year flipping between variations of “stock markets hit new high (or lows)” and “inflation at all-time highs (or eased).” Investors are undoubtedly feeling the whiplash in their investment accounts and may also feel equally uneasy about deciding what to do next with their savings.

In these types of environments, it might be prudent to “leave it to the professionals,” as the saying goes. Specifically, looking at multiasset products, also known as balanced or allocation products, can be helpful. Multiasset portfolio managers allocate across various asset classes, aiming to provide an expected level of risk and return by investing in a variety of security types. The allocation to each asset class depends on the investment objective and independent manager’s market outlook. For example, more conservative strategies would have a higher allocation to bonds, which are traditionally more defensive securities, while more aggressive strategies would have a higher allocation to stocks, which are traditionally riskier. Investing in a multiasset product allows investors to match their investment preferences with expected risk level and eliminates the need for them to decide whether stocks or bonds are the right place to be.

Given there are multiple options across the risk spectrum, I wanted to provide investors with a list of moderately risky balanced products. I used Morningstar Direct to screen more than 350 global and Canadian-focused neutral balanced mutual funds and exchange-traded funds to find a selection of top-rated strategies to consider. The criteria include:

  • Funds categorized by the Canadian Investment Funds Standards Committee (CIFSC) as either Canadian neutral balanced or global neutral balanced. This indicates that funds must invest greater than or equal to 40 per cent but less than or equal to 60 per cent of their total assets in stocks. In the case of Canadian neutral balanced, additional criteria requires at least 70 per cent of the assets to be in securities domiciled in Canada or Canadian dollar-denominated. Global neutral balanced requires that less than 70 per cent of assets be in securities domiciled in Canada or Canadian-dollar denominated.
  • A Morningstar Quantitative Rating of bronze, silver or gold indicating a forward-looking view of the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over a full market cycle.
  • A Morningstar Rating (aka “star rating”) of five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds etc., after receiving the rating.

What we found

FundMER (%)Morningstar Quantitative RatingMorningstar Rating3M Ttl Rtn. (%)YTD Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)Morningstar CategoryNet Equity (%) Net Fixed Income (%)Net Cash (%) Other (%)Holdings as of
Fidelity Canadian Balanced Class F0.92Silver5 stars0.9-10.74.0 Cdn. Neutral Bal.49.743.32.54.46/30/2022
Fidelity Monthly Income Series F0.92Bronze5 stars-1.5-8.43.7 Cdn. Neutral Bal.
Manulife Cdn Growth & Inc Priv Trust F0.89Gold5 stars-1.2-10.13.7 Cdn. Neutral Bal.54.733.65.76.08/31/2022
Manulife Monthly High Income Class F0.89Silver5 stars0.0-12.73.3 Cdn. Neutral Bal.54.529.17.58.98/31/2022
PH&N Monthly Income Fund F0.82Gold5 stars-0.9-7.35.0 Cdn. Neutral Bal.60.629.82.27.58/31/2022
RBC Managed Payout Soln-Enhanced Plu F0.85Gold5 stars-0.5-9.94.6 Cdn. Neutral Bal.59.531.63.25.68/31/2022
Canadian Neutral Balanced Category Avg.-3.0-8.73.553.
Fidelity Balanced Portfolio Series F1.10Bronze5 stars0.7-12.33.5 Global Neutral Bal.47.920.713.418.08/31/2022
Fidelity Global Balanced Portfolio F1.11Bronze5 stars0.8-13.92.6 Global Neutral Bal.45.520.514.219.88/31/2022
Fidelity US Gr & Inc Private Pool F0.96Silver5 stars3.0-10.44.8 Global Neutral Bal.47.040.910.12.06/30/2022
Fidelity US Monthly Income Ser F1.04Bronze5 stars2.4-8.83.2 Global Neutral Bal.
Manulife Global Balanced F1.14Silver5 stars-0.9-16.42.7 Global Neutral Bal.58.333.16.02.58/31/2022
Manulife Global Monthly High Income F1.21Silver5 stars-0.5-21.26.3 Global Neutral Bal.
Manulife Strategic Balanced Yield F1.14Bronze5 stars-1.2-14.23.1 Global Neutral Bal.58.438.91.21.48/31/2022
TD Global Tactical Mthly Inc F Ser0.94Bronze5 stars-0.7-16.63.1 Global Neutral Bal.53.938.42.65.18/31/2022
Global Neutral Balanced Category Avg.-2.4-11.82.350.434.56.09.08/31/2022

Source: Morningstar Direct

Interestingly, no ETF made our list, which could be the result of multiasset funds having a longer history in mutual fund structure. I also note the list is dominated by two names prominent in the multiasset space in Canada: Fidelity and Manulife. All but one fund outperformed their relevant category averages over the three-month and three-year periods, but only those with an income-focus outperformed over the year-to-date period. Although all funds maintain their moderately risky asset allocation targets, there is an inconsistency among the list in terms of their over- and underweights to both equity and fixed income relative to peers, an indication of active management and potentially diverging market outlooks. In all cases, we see an active use of both cash and alternative investments as well, likely to offset risk in traditional asset classes.

Note that the management expense ratios listed here are reflective of the oldest share class. In the table, F-class (also known as fee-based share classes) shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.

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