High-yielding equity securities will probably continue to perform well in the years ahead as baby boomers are still in the midst of retiring, creating demand for income-producing securities.
Many investors either are right now, or will soon be, taking occasional or regular income from their investment portfolios to support their retirement needs. We consider this one of the main investment themes for many years to come.
Some mutual funds that address this need come in the form of equity income funds. Dynamic Equity Income (DYN3522 (BE), DYN029 (FE), DYN3422 (LL)) is one such fund. It seeks high income and long-term growth of capital by investing primarily in equity securities that pay a dividend or distribution.
The fund invests primarily in a wide range of equity securities such as dividend or distribution paying equity securities and real estate investment trusts on a global basis, as well as in other types of equities and/or debt securities including limited partnerships, master limited partnerships and high-yield, corporate, convertible and government bonds and money-market instruments.
Dynamic Equity Income’s management team follows a Quality at a Reasonable Price, or QUARP, investment approach and uses strict due diligence measures in determining “best in class” businesses for the portfolio. The team invests in businesses with sustainable cash flow distributions, dominant positions in their respective industry sector and management holding a significant equity stake.
The fund’s recent asset allocation breaks down as follows: Canadian common stocks, 48.8 per cent; U.S. common stocks, 27.6 per cent; real estate investment trusts, 11.4 per cent; cash, 10.6 per cent; private equity, 1.3 per cent; and convertible debentures, 0.3 per cent.
The fund is generally well diversified by industry sectors. Its sector allocation breaks down as follows: energy, 17.5 per cent; financials, 16.1 per cent; real estate, 13.7 per cent; energy infrastructure, 11.3 per cent; consumer discretionary, 7.9 per cent; utilities, 5.0 per cent; materials, 4.7 per cent; industrials, 4.5 per cent; telecommunications services, 4.2 per cent and health care, 1.4 per cent.
The fund’s top equity holdings include Vermillion Energy, an international Alberta-based oil and gas producer that yields an annual 3.8 per cent; and Comcast Corp., which is involved in broadband cable networks, electronic commerce and programming content, with a yield of 1.6 per cent.
Dynamic’s equity income team is headed by Oscar Belaiche. Mr. Belaiche has 32 years of business, operational and investment experience as a money manager, asset manager, developer and corporate banker. He joined Dynamic in 1997, and he has managed Dynamic Equity Income since 2001.
Under Mr. Belaiche, the fund has delivered a compound annual return of 9.7 per cent these past 10 years. That ranks in the top quartile of all funds in the Canadian dividend and income equity category. Over the decade, the fund has performed in the top half of the category in six years.
Volatility has been low, even for a fund in a category that tends to not have sharp ups and downs. Its volatility rating is three out of a top volatility score of 10.
The fund currently pays a monthly distribution of $0.07 that yields an annual 4.3 per cent on the current unit price of $19.74.
The fund is a buy if you want high income and some growth from a mostly equity-based mutual fund, and you can tolerate low to medium investment risk.
Money Reporter, MPL Communications Inc.
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Money Reporter •10/15/14 •