The FundGrade A-rated Dynamic Dividend Fund looks to provide investors with a stable stream of income. The fund’s managers look for what they believe to be best-in-class companies that pay a sustainable dividend and have the potential for growth.
Managed by the team of Oscar Belaiche and Jason Gibbs, the fund pays a monthly distribution of $0.018, which works out to an annualized yield of just over 1.75%. To fund this distribution stream, the managers use a process they call “quality at a reasonable price,” which is a fundamentally-driven, bottom-up approach that focuses on identifying low-volatility firms with strong balance sheets, dominant industry positions, invested management, and a history of steadily growing free cash flow and increasing shareholder yield.
With a portfolio holding about 50 names, the managers have the flexibility to invest not only in common shares, but also preferred equity and trusts. The fund can also invest outside of Canada, and at the end of March it held 25% in the U.S., 67% in Canada, and the balance in cash. The top 10 stocks make up over a third of the fund.
As of March 31, the top holdings included Royal Bank of Canada (TSX: RY), Bank of Nova Scotia (TSX: BNS), TransCanada Corp. (TSX: TRP), Toronto-Dominion Bank (TSX: TD), and Innergex Renewable Energy Inc. (TSX: INE).
Given the dividend focus of the fund, it’s not surprising to see financials are the biggest sector weight at 32%, followed by other high yielding industries like utilities (9%), telecom (8%), and energy infrastructure (7%).
Performance has been strong, with a 5-year average annual rate of return of 8% to the end of March, compared with 2.1% for the broader S&P/TSX Composite Index. It has consistently managed to outperform its peer group, finishing above average more often than not. More impressive is that the fund’s volatility at a 3-year average 7.57% has been significantly lower than the broader market, and it has provided significantly better downside protection. The fund has historically held up very well when markets are falling, providing a much smoother ride for investors. It consistently places in the first quartile for performance, earning it the FundGrade A-Grade rating for March.
This fund may not always keep up with the competition, but with lower-than-average volatility, I would expect it to deliver above-average risk-adjusted returns over the long-term. I see this as a great core holding for risk-averse investors looking for high-quality equity exposure.
Fund company: Dynamic Funds
Fund type: Canadian Dividend & Equity Income
FundGrade Rating: A
Style: Blend
Risk level: Medium
Load Status: Optional
RRSP/RRIF suitability: Excellent
Manager: Jason Gibbs since March 2007; Oscar Belaiche since July 2000
MER: 1.60%
Fund code: DYN048 (front-end)
Minimum investment: $500
Courtesy Fundata Canada Inc. © 2016. Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc. This article is not intended as personalized advice. Investments mentioned are not guaranteed and carry risk of loss.
