Here are two sleep-at-night mutual funds that, together, constitute a well-diversified portfolio with exposure to different geographical areas and industries.
Trade tensions and inverting interest rate yield curves have increased market volatility lately. While volatility can be an aggressive investor’s friend, it’s the enemy of very conservative investors who don’t have a high tolerance for it. If that’s you, consider these two funds for your portfolio. They should help you sleep better at night.
Fund emphasizes large Canadian companies
Fidelity Canadian Large Cap Fund (Series B Fund code: CIF231(FE)) is the least volatile fund in our Mutual Fund Planning Guide. In fact, it’s managed with an aim to weather market volatility.
The fund aims to achieve long-term capital growth through investment mostly in the stocks of Canadian companies. It tends to focus on large companies, which are usually able to withstand economic setbacks more easily than their smaller counterparts.
The fund is allowed to invest up to 49 per cent of its assets in foreign securities. Right now, it’s 50-per-cent invested in Canadian equities, 21 per cent in foreign equities, 11 per cent in foreign bonds and 18 per cent in cash.
The high fixed-income and cash component will help anchor the portfolio in a market setback. A sizable cash position will also let it take advantage of bargains in the same situation.
The fund is also overweighted with consumer staples stocks. These defensive securities make up 14.1 per cent of the portfolio and include companies like food retailer Metro. Given that people still need to eat in a recession, grocery stores tend to remain profitable in hard times.
We figure that more than 50 per cent of the portfolio is defensively invested. It’s a buy if you want a very conservative fund.
A fund with high-quality multinational companies
Mackenzie Ivy Foreign Equity Fund (Fund codes: MFC1025(FE), MFC1175 & 1684(DSC), and MFC2166(LSC)) pursues long-term growth by investing in a select group of high-quality, multinational companies. It’s suitable as a core global equity holding, particularly if you want lower volatility. It’s among the least volatile funds in our Planning Guide. Mackenzie says preservation of an investor’s wealth is the hallmark of the fund’s investment approach.
Currently, the fund holds 28 per cent of its assets in cash. Its largest industry sector is consumer staples, which makes up a further 23 per cent of the portfolio. About 60 per cent of the fund is defensively invested.
The fund has very little exposure to emerging markets, with most of the portfolio focused on the US, Europe and Japan. Its high-quality investments include well known names such as Costco, Johnson & Johnson and Procter & Gamble.
While the market correction in late 2018 provided the fund with an opportunity to deploy cash into new investments, the market’s subsequent comeback has caused stock valuations to rise. Consequently, the fund has sold food and beverage company Nestle, a mainstay of the portfolio for 12 years. Right now, the fund’s advisers find that valuations are generally unattractive.
You could, of course, build a basic equity portfolio from these two funds that suits a very conservative investor. Put about 60 per cent of the portfolio in Fidelity Canadian Large Cap and the remainder in Mac Ivy Foreign Equity. Together, they constitute a well diversified portfolio that has exposure to different geographical areas and industries.
This is an edited version of an article that was originally published for subscribers in the September 13, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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