A fund for conservative income investors

Scotia Canadian Dividend Fund has led its peer group this year, and it delivered excellent results last year. But it has also done well over longer time frames. It’s well diversified by geography, industry sector and individual securities.

Dividend_Stocks Scotia Canadian Dividend Fund (Fund code: BNS385 (NL)) has outperformed its peer group so far this year. Though the fund is down 5.1 per cent over this time, this return compares favourably with the 5.8-per-cent loss of the average fund in the Canadian dividend and income equity fund category.

Scotia Canadian Dividend seeks to earn a high level of dividend income with some potential for long-term growth. It invests primarily in dividend-paying common shares and it can also invest in a broad range of preferred shares, such as floating-rate, convertible and retractable preferred shares of Canadian companies.

Its portfolio adviser uses fundamental analysis to identify investments for the fund. This involves evaluating the financial condition and management of each company, as well as its industry and the economy. The portfolio’s assets are diversified by industry and company to help reduce risk.

Strong performance spans years

The fund’s outperformance this year is eclipsed by more remarkable results last year. In 2017, its annual return was 11.3 per cent, well ahead of the category average of 7.1 per cent. This placed it in the top quartile of the category.

The fund also outperformed its benchmark, the S&P/TSX Composite index, which returned 9.1 per cent.

This outperformance was due in part to an underweight and security selection among energy stocks, which saw weakness over the period, as well as an overweight and security selection of technology stocks.

The fund has continued to underweight energy and overweight technology. Currently, about 12.1 per cent of its assets are invested in energy, compared with 18 per cent on the S&P/TSX Composite. Meanwhile, the portfolio is about 10.0-per-cent invested in technology, while the index has just a 3.9-per-cent weighting in this sector.

If current market trends remain in place, then, the fund may be poised for further outperformance. The energy sector on the TSX, after all, is down 11.3 per cent year to date, while technology is up 14.7 per cent. On the S&P 500, the sector has gained 4.3 per cent.

The fund’s top holdings in the tech sector include Visa Inc. and Microsoft, which together make up about five per cent of the portfolio.

Meanwhile, its top energy holdings include Suncor Energy and TransCanada Corp.

The fund is a buy if you can tolerate low to medium investment risk and you want dividend income, with the tax advantage that brings, as well as the potential for long-term growth.

Fund is well suited to conservative investors

The fund also has a relatively strong long-term track record. Over the past three- and five-year periods it has performed in the top quartile of the Canadian dividend and equity income category, and in the past 10- and 15-year periods it performed in the second quartile.

The fund’s performance is helped by a relatively low management expense ratio (MER). Its MER is 1.73 per cent, compared with 2.05 per cent for the category median.

The fund is well suited to conservative investors. For one thing, it’s less volatile than its peers and the overall market. Its three-year trailing standard deviation is 6.71, compared with 7.46 for the S&P/TSX Composite Total Return index, and 7.58 for the average fund in its category.

Conservative investors should also appreciate the fund’s diversification. It’s well diversified by geography, industry sector and individual securities.

It has 63.9 per cent of its assets invested in Canada, 32.3 per cent invested in the U.S., and 3.8 per cent in Ireland.

The fund holds 31 securities.

This is an edited version of an article that was originally published for subscribers in the April 6, 2018, 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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