For our Mutual Fund Planning Guide, we’ve chosen the 40 best Canadian funds we think offer all you need from which to assemble a diversified, profitable mutual-fund portfolio. But when things change, we change our list. That’s what’s happened now, as we’ve dropped one fund from the list and added another.
We welcome Sentry Canadian Income Fund (Fund codes: NCE717 (FE), NCE317 (DSC), NCE217 (LL), NCE2217 (LL)) to our list of Canada’s top 40 best mutual funds. It replaces Franklin Bissett Canadian High Dividend Fund.
Sentry’s objective is to provide a consistent monthly income and capital appreciation by investing primarily in a diversified portfolio of Canadian securities including equities, fixed-income instruments, real estate investment trusts and income trusts. To achieve this objective, the fund’s managers follow a fundamental, bottom-up approach to investing.
The investment style is a blend between growth and value investing. The emphasis is on large- and mid-cap securities.
The fund’s management team consists of five managers. The most senior, Michael Simpson, has been with the fund since 2002.
Canadian income fund also in top quartile for growth
Sentry Income, then, has at least one manager that has been with it for 10 years. Over that time, the fund’s compound annual growth rate is 8.4 per cent, which ranks in the top quartile of Canadian focused equity funds.
The fund has also performed in the top quartile over the past five years. Over the past three- and one-year periods, it has performed in the second quartile.
On a year-by-year basis, the fund has performed in the top half of the category in nine of the past 10 years, which is an exceptional performance.
Currently, the fund has 89 per cent of its assets invested in equities, six per cent in cash and five per cent in fixed income.
The fund’s prospectus lets it invest up to 49 per cent of its assets in foreign securities. Right now, it has 42 per cent invested in U.S. securities and the remainder in Canadian securities.
Well-diversified portfolio for a top Canadian income fund
The portfolio is well diversified by industry sectors. Its sector breakdown is as follows: industrials, 25 per cent; energy, 11 per cent; financials, 10 per cent; consumer staples, eight per cent; real estate, eight per cent; technology, six per cent; cash, six per cent; materials, six per cent; and other, 20 per cent.
Some of the securities we recommend in Money Reporter are among the fund’s top holdings. These include AltaGas Ltd., Loblaw Companies and Progressive Waste Solutions.
The current monthly distribution is $0.0775 a unit. On an annualized basis, this yields 4.9 per cent on the current net asset value of $18.94 a unit. Historically, distributions have come in the form of capital gains and return on capital.
The management expense ratio (MER) is 2.70 per cent, slightly above the 2.68-per-cent median MER for the category.
Sentry Income Fund is a buy if you want a regular source of income and the potential for capital appreciation. We view it as a very conservative Canadian equity mutual fund.
We’ve dropped this aggressive stock fund
We’ve removed Franklin Bissett Canadian High Dividend Fund from this issue’s Mutual Fund Planning Guide. Bissett High Dividend, formerly one of our Aggressive Canadian Stock Funds, incurred deep losses in 2014 and 2015, losing 16.0 and 26.3 per cent, respectively. In large part, this was due to the fund’s substantial position in energy income stocks, which have suffered badly as a result of the collapse of commodity prices.
Over the long term, we suspect the fund’s performance will rebound, and it will once again post results that are favorable in comparison to its peers. That was certainly the case in 2007 to 2008, and 2010 to 2012, years in which the fund handily outperformed the average Canadian small/mid-cap equity fund.
But it may be a while before the fund returns to its former winning ways. That’s because its still holds about 29 per cent of its portfolio in energy stocks. And it may take some time before these stocks rebound, as oil and gas prices could remain weak this year.
Though we have confidence that the management team at Bissett has the capability to reinvigorate its performance over time, the fund is not a timely investment. We, therefore, rate it a hold, and have replaced it with a more conservative fund.
Money Reporter, MPL Communications Inc.
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