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Mutual Fund News

You should pop the hood on these balanced funds

rcarrick@globeandmail.com

What We're Looking At

It's Day Two of our week-long look at how the mutual funds that were massacred last year have done in 2009. Today, balanced funds.

Our Screen

Funds in all of the Canadian balanced categories (neutral, equity bias and fixed-income bias) with assets of $25-million or more were ranked according to the size of their losses in 2008. To see how each fund has rebounded, we have displayed the return for the year through Nov. 26. For a longer-term view on the performance of these funds, we have included five-year quartile numbers. Quartiles divide funds in a category into four groups: first quartile is best, fourth is worst.

What We Found

People buy balanced funds as a sort of stock market lite product - you know, performs great, less risky. But you have to understand that there are differences between balanced funds. As today's screen shows, equity balanced funds (with an emphasis on stocks over bonds) took the worst hits in 2008. Neutral balanced funds (stocks and bonds in roughly equal proportions) are scarce on the list, while fixed-income balanced funds (emphasis on bonds) are even rarer.

It pays to know what's in your balanced funds both in terms of downside risk and upside potential.

Take Investors Canadian Balanced as an example. If you pop the hood on this Canadian equity balanced fund, you'll find that it had just about 69 per cent of its assets invested in stocks (according to its most-recent report to Globefund.com), 20 per cent in bonds and the rest mostly in cash. The fund fell hard in 2008, but its heavy stock weighting has delivered big time this year. Bottom line, this is a pretty aggressive balanced fund.

Dynamic Power Balanced provides another example of how you need to scrutinize the holdings of a balanced fund. This Canadian neutral balanced fund (suggesting stocks and bonds would be more or less equal) actually had almost 58 per cent of its assets in stocks as of its most recent reporting date, 40 per cent in bonds and the rest in cash. Again, this is a fairly aggressive mix that has played itself out through zigzag returns this year and last.

Balanced funds are hugely popular with investors, but they differ widely in approach. Make sure you get the kind of balance that suits your needs.

Balanced Funds as of Nov. 26, 2009
YTD5-yr
Assets ($-mil)Latest% rtn% rtnQuartile
Fund name (as of Oct. 31)MER2008Nov. 26Oct. 31Category
ROI Canadian Retirement Series A44.0-33.421.4Canadian Equity Balanced
Acuity Social Values Balanced59.52.94-31.630.22Canadian Equity Balanced
Manulife Core Balanced Fund96.32.45-29.711.4Canadian Equity Balanced
Brandes Sionna Diversified Income24.82.15-29.423.4Canadian Equity Balanced
Acuity Canadian Balanced97.42.93-28.831.42Canadian Equity Balanced
TD Dividend Income-I3,151.51.92-28.827.62Canadian Equity Balanced
Dynamic Diversified Real Asset27.82.53-27.836.7Canadian Equity Balanced
Investors Canadian Balanced-C1,538.62.85-27.742.91Canadian Equity Balanced
Dynamic Power Balanced1,442.22.11-26.933.61Canadian Neutral Balanced
Axiom Canadian Growth Portfolio54.22.42-26.221.6Canadian Equity Balanced
imaxx Canadian Fixed Pay175.12.61-25.929.33Canadian Equity Balanced
TD Diversified Monthly Income-I547.42.18-25.624.93Canadian Equity Balanced
Axiom Long-Term Growth Portfolio223.82.45-25.519.1Canadian Equity Balanced
Desjardins Dividend Income648.72.05-25.121.32Canadian Equity Balanced
Desjardins Alternative Investments752.12.49-24.117.44Canadian Equity Balanced
Mackenzie Saxon Balanced-SI261.91.99-23.625.92Canadian Equity Balanced
TD Monthly Income3,973.41.40-23.427.71Canadian Equity Balanced
BMO GDN Can Divers Mthly In-M363.72.30-22.722.03Canadian Equity Balanced
Investors Dividend-C11,896.32.85-22.520.43Canadian Equity Balanced
National Bank Monthly Income222.01.67-22.426.42Canadian Equity Balanced
Altamira Tactical Asset Allocation79.21.55-21.820.41Canadian Equity Balanced
Fidelity Monthly High Income-A68.22.25-21.732.9Canadian Equity Balanced
Manulife Simplicity Balanced Port923.42.55-21.520.04Canadian Neutral Balanced
IA Clarington Canadian Balanced165.72.69-21.519.83Canadian Equity Balanced
Investors Mutual of Canada-C2,249.22.85-21.318.53Canadian Equity Balanced
Source: Globe Investor

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