Here’s a mutual fund for income and growth

Scotia Canadian Dividend has been a relatively strong performer compared to its peers in the Canadian dividend and equity-income mutual fund category. It’s a fund that will fit with an investment strategy of building a portfolio with a combination of income and growth.

Mutual FundsThe most important starting point when articulating your investment strategy is a clear understanding of your objectives. Some of the main investment objectives are safety of principal, liquidity, income and long-term growth of capital. Once you’ve decided on your objectives, it’s much easier to pick securities that have the best chance of fulfilling those objectives.

You may, for example, want to build a portfolio with a combination of income and growth stocks. If so, you should consider Scotia Canadian Dividend Fund (Fund code: BNS385(NL)). The fund’s investment objectives are to earn a high level of dividend income with some potential for long-term capital growth. Its investment mandate, therefore, lets it invest primarily in dividend-paying common stocks and in a broad range of preferred shares, such as floating rate, convertible and retractable preferred shares of Canadian companies.

To accomplish these objectives, the fund’s portfolio advisor uses fundamental analysis to identify investments that pay dividends and income and have the potential for capital growth over the long term. This includes evaluating the financial condition and management of each company, as well as its industry and the economy.

The fund has performed relatively strongly over the long term. Its 5.6-per-cent compound annual growth rate over the past 10 years compares favourably to the Canadian dividend and income equity category average of 5.1 per cent.

But the fund has performed even more strongly compared to its peers under its current portfolio manager Jason Gibbs. Mr. Gibbs, who has 15 years industry experience, joined the fund in late 2011. Since then, the fund has performed in the top quartile of its category in each of the past one-, three- and five-year periods. In the past five years, for example, its annualized return is 11.1 per cent, compared to 8.3 per cent for the average fund in the category.

Yet while the fund has outperformed most of its peers, it has done so while incurring less volatility. It’s less volatile than both the average fund in its category and the S&P/TSX Composite Index.

Lower volatility mean less risk. To reduce risk, the fund’s assets are diversified by industry and company. The portfolio’s most heavily-weighted sectors are financial stocks (24.4%) and energy stocks (12.1%). Yet in both cases, the fund is underweighted in these sectors compared to the S&P/TSX.

Fund is well diversified

The fund’s geographical breakdown is as follows: Canadian stocks, 54.7 per cent; US stocks, 30.7 per cent; cash, 11.3 per cent; and Ireland, 3.4 per cent.

The fund’s top-five industry sectors break down as follows: financial stocks, 24.4 per cent; energy stocks, 12.1 per cent; telecommunications, 9.2 per cent; industrials, 9.2 per cent; and technology stocks, 8.8 per cent.

The fund has 45 individual stock holdings, and no single stock accounts for more than five per cent of the portfolio. Its three top holdings are Scotiabank (4.2% of the portfolio), Royal Bank (3.8%) and TD Bank (3.8%). CIBC (3.2%) is also among the top holdings.

Energy stocks account for four of the top-10 holdings. TransCanada (3.7%) is the largest of these holdings, followed by Enbridge (2.4%) and Suncor Energy (2.4%).

The fund gives you some utility exposure through Fortis Inc., which has a weighting of 2.7 per cent. And Canadian National Railway (2.6%) is the portfolio’s largest industrial weighting.

Scotia Canadian Dividend Fund is a buy if want growth and income and you can tolerate low to medium investment risk. 

This is an edited version of an article that was originally published for subscribers in the November 3, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846