Two years after the federal government lifted foreign content restrictions, this past RRSP season is proof that Canadian retail investors are going global.
No doubt it's a rough world out there, and when it comes to investing in global equities the choices are as wide as the world itself. One way to get global exposure and maintain that same level of comfort found in your home market is through a global balanced fund.
As the name implies, a balanced fund strikes a balance between the volatile equity market and the more predictable fixed income market. You won't get rich owning a balanced fund but you could do all right if you choose the right one.
As of March 1, the best performing global balanced fund available on the Canadian market was the Templeton Global Income Fund, managed by Franklin Templeton Investments. Last year, the fund returned 17.5 per cent, compared with a return of less than 10 per cent from the average global balanced fund.
Lead manager Lisa Myers says the fund's balance has recently been changed from 60 per cent equity and 40 per cent fixed income to 65 per cent equity and 35 per cent fixed income. "We felt that the fundamentals created opportunities on the equity side," she said.
Ms. Myers says most of the new equity investments bolstered positions the fund already held, including big pharmaceutical stocks such as GlaxoSmithKline, Pfizer and Merck.
With 37 Templeton managers in eight countries, borders are not a consideration when it comes to finding value, Ms. Myers. "We are very much bottom-up stock pickers," she said. As a result, portfolio holdings are fairly well spread out around the world.
To temper risk, the fund's managers look for stocks that pay steady dividends instead of adding to the fixed income component of the fund. "I hate calling it a balanced fund because people think of stodgy fixed investment vehicles," she says. "Regardless, the risk is quite low compared with straight equity funds."
The benchmark for global balanced fund performance is a mix of 60 per cent to the Morgan Stanley Capital International World index and 40 per cent to the Lehman Brothers government-corporate bond index. Over the past year, the MSCI World/Lehman index has returned just over 17 per cent -- well above the 8.8-per-cent 20-year average.
Other top performing global balanced funds over the past year include the Fidelity Global Asset Allocation Fund (17.3 per cent), BMO Nesbitt Burns Growth Portfolio (13.5 per cent) and AGF Elements Growth Portfolio (12.9 per cent).
It's important to note that global balanced funds are intended as long-term investments. Over the past five years, the average global balanced fund returned 6.6 per cent annually. In 10 years, the average fund returned 6.5 per cent, or 8.1 per cent in the past 15 years.
"They're the ideal one-stop solution," said Morningstar Canada analyst Mark Chow. He says global balanced funds are the perfect investment for someone looking for a small piece of the action, everywhere.
However, Mr. Chow cautions that some global balanced funds are spread thin and that could limit choice. "Most of them are within a single family and there aren't that many families out there with the breadth to provide quality offerings in every segment of the market."
Spreading a global balanced portfolio thin can also get costly. A balanced fund is basically two funds: equity and fixed income. In most cases the fixed income portion is heavily weighted toward Canadian bonds, but within the equity portion are several managers that specialize in their specific regional markets.
For that reason, most global balanced funds are actually funds of funds. In other words, the company that offers the fund often holds other funds offered by that company within the portfolio. "Fees can be a little higher than other funds because they're doing a lot of rebalancing for you," Mr. Chow said.
Dale Jackson is a producer at Business News Network.