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What are we Looking for

Balanced funds that tilt toward fixed income for those seeking safety.

The screen

In Canada, roughly one-quarter of domestic mutual funds are balanced funds (those that hold multiple asset classes). A broad majority of these funds are what Morningstar deems target allocation funds, or those that hold a relatively static mix of stocks and bonds. In a tumultuous year so far across the market, it was clear that target allocation funds with a heavier tilt toward bonds fared better than those that had a higher weighting in equities. In fact, based on Morningstar’s classification system it can be shown that, on average, funds with between 60 per cent and 95 per cent invested in fixed income have recovered to their prepandemic highs while those with higher exposure to equities have yet to do so. If a short investment time horizon and a low risk tolerance are what you are looking for, this week’s screen may offer some appropriate fund ideas.

I used Morningstar Direct to search for global fixed-income balanced funds (those that primarily hold securities outside of Canada and have between 60 per cent and 95 per cent bonds) that have performed well relative to others in the same category, hence receiving a Morningstar Rating Overall of four stars or more. That rating is a historical comparison of after-fee returns with other funds in the same category, adjusted for differences in risk levels. A fund must have three full years of history before receiving a rating. Only the oldest share class of each fund was considered in this analysis and funds reserved for institutional investors were excluded.

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Morningstar explicitly adjusts for risk in calculating our ratings to help level-set risk versus return. For example, a fund may have spectacular return relative to others in the category, but may also be taking on higher levels risk. This risk-reward payoff is accounted for in the calculation of our star ratings, even within a low-risk category such as global fixed-income balance funds.

What we found

The funds that met the requirements are listed in the accompanying table along with their fees, inception dates, ratings and trailing performance. Funds are sorted by star rating then by three-year returns. Also included for clarity is how the fund is sold. Fee-based share classes require that you have a fee-based account with your adviser, who typically charges an overall management fee outside the management expense ratio (MER) cost. Do-it-yourself share classes are no-frills and offer no financial advice but often have lower fees. Commission-based share classes typically have the highest fees and embed the cost of advice.

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

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 advisors, 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: @MorningstarCDN.

Canadian balanced funds

NameFirm NameDistribution Channel Morningstar Rating OverallInception DateMER (%)Total Ret YTD Total Ret 1 Yr Total Ret Annlzd 3 Yr Total Ret Annlzd 5 Yr Total Ret Annlzd 10 Yr
BMO Conservative ETF Portfolio FBMO Investments Inc.Fee-based Advice5 Stars8/12/20130.555.407.146.135.72
Fidelity Global Income Portfolio Sr FFidelity Investments Canada ULCFee-based Advice5 Stars4/18/20071.004.706.526.025.376.70
Fidelity Income Portfolio Series FFidelity Investments Canada ULCFee-based Advice5 Stars4/18/20071.015.336.726.015.186.28
Manulife Moderate Portfolio Series FManulife InvestmentsFee-based Advice5 Stars5/5/20171.135.767.875.93
Manulife Yield Opportunities FManulife InvestmentsFee-based Advice5 Stars12/23/20091.093.875.945.116.096.31
Mackenzie Mthly Inc Cnsrv Port DMackenzie InvestmentsDo-It-Yourself5 Stars12/1/20141.123.003.974.365.16
BMO Retirement Conservative Port FBMO Investments Inc.Fee-based Advice4 Stars8/25/20150.676.368.385.904.73
Sentry Conservative Income Portfolio FCI Investments IncFee-based Advice4 Stars9/16/20141.094.146.315.544.80
Meritage Global Moderate Port FNational Bank Investments IncFee-based Advice4 Stars3/1/20161.134.217.185.33
BMO Retirement Income Portfolio FBMO Investments Inc.Fee-based Advice4 Stars8/25/20150.616.927.895.324.05
Meritage Global Conservative Port FNational Bank Investments IncFee-based Advice4 Stars3/1/20161.124.716.495.03
RBC Select Conservative Portfolio ARBC Global Asset Management Inc.Commission-based Advice4 Stars12/11/19861.844.866.894.874.705.11
Desjardins Melodia Moderate Growth ADesjardins Investments IncCommission-based Advice4 Stars5/10/20132.144.556.704.694.39
Franklin Quotential Bal Inc CC Pt FFranklin Templeton Investments CorpFee-based Advice4 Stars6/28/20041.015.307.064.524.335.30
Sun Life Granite Conservative Port FSLGI Asset Management IncFee-based Advice4 Stars1/17/20121.042.804.054.364.27
AGF Elements Conservative Portfolio Sr FAGF Investments Inc.Fee-based Advice4 Stars11/25/20051.064.125.744.324.635.27
Scotia Aria Conserv Build Port Prem SrScotia Asset ManagementCommission-based Advice4 Stars11/24/20141.484.246.344.004.35
AGF Diversified Income Class Sr FAGF Investments Inc.Fee-based Advice4 Stars8/27/20071.564.626.433.994.285.07

Source: Morningstar Direct; Data as of October 13, 2020

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

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