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REITs, energy stocks helped RBC fund ride out storm

swon@globeandmail.com

What are we looking for?

Given the recent choppy stock markets, it's nice to own funds that can also generate income from dividends or distributions to help cushion the blow from downturns.

Let's see which Canadian dividend and income equity funds have the best history of making money over the past three years, which includes the 2008-09 stock market crash.

The screen

We ranked the best 15 performers for the three-year period ended July 31. Some funds may have had prior lives as income trust equity funds, but this category no longer exists. Most income trusts converted to corporations before a 2011 deadline by Ottawa whereby trusts would be taxed like common stock companies. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

All 15 funds were index beaters over three years. They trounced the S&P/TSX total return index's 1.4-per-cent annualized gain.

RBC Canadian Equity Income was the star performer with a 17.1-per-cent annualized return. Fidelity Dividend Plus, with an annual 11.1-per-cent gain, was the only other fund with a double-digit return.

RBC Canadian Equity Income was launched in 2006 as the RBC Canadian Diversified Income Trust fund. Even though it originally focused on investing in income trusts, it could own up to 20 per cent in high-dividend paying stocks. The name change came in mid-2009 when it morphed into a dividend and income fund.

The fund's strong three-year performance stems partly from owning winning energy names such as Bonavista Energy, Trilogy Energy, Peyto Exploration & Development and Arc Energy, says its lead manager Jennifer McClelland of RBC Global Asset Management.

Real estate investment trusts, including names such as Primaris Retail, Boardwalk and Canadian REIT, also contributed to returns. "We stuck with the REITs as they sold off hard in 2008," she said. "The value came back and they have been excellent performers."

Currently, the fund is 20 per cent invested in energy producers and 30 per cent financials, including REITs, banks and insurance companies, she said.

"I haven't been afraid to shave some money ... to capture profit" during volatile times as opposed to just buying and holding stocks, Ms. McClelland said. "That has added a lot of value. ... When everything gets sold indiscriminately, we are [also] buying better names at good values."

*****

TOP PERFORMERS AMONG CANADIAN DIVIDEND AND INCOME EQUITY FUNDS OVER 3 YRS

(July 31)Latest(July 31)(Aug 24)(July 31)Calendar Year % Returns
NameAssets ($-mil)MER3-yr % rtnYTD % rtnYTD % rtn201020092008200720062005
RBC Canadian Equity Income668.552.0617.10.98.724.059.5-18.89.5n/an/a
Fidelity Dividend Plus-B213.792.1211.4-0.87.219.845.9-22.15.413.7n/a
Sentry Canadian Income1,520.492.618.20.14.518.633.0-22.88.14.623.4
Investors Cdn Equity Income C578.412.958.20.95.722.847.4-25.58.01.3n/a
Omega Preferred Equity395.151.528.03.94.79.026.6-16.0n/an/an/a
Tera High Income2.002.317.6n/a0.417.730.8n/an/an/an/a
Claymore S&P/TSX Pref Share ETF595.40n/a7.33.84.46.626.2-17.1n/an/an/a
Bissett Canadian Dividend-A251.972.426.8-2.01.616.333.5-25.65.14.518.7
Claymore S&P/TSX Cdn Dividend ETF727.370.646.70.75.215.238.2-30.46.3n/an/a
MD Income & Growth186.661.536.3-1.52.316.828.0-25.5n/an/an/a
Fidelity Dividend Class-B133.132.105.9-1.21.213.232.5-22.8n/an/an/a
Matrix Monthly Pay212.693.245.8-6.4-1.221.438.3-31.3-0.14.40.0
CI Signature Dividend897.221.975.8-3.21.49.432.1-23.0-5.110.811.7
Fidelity Dividend-B542.182.125.5-1.21.211.832.5-22.75.215.2n/a
iShares Dow Jones Cda Sel Div Idx879.640.504.7-0.91.912.836.8-30.9-0.815.5n/a
S&P/TSX Composite Index-1.6-8.2-3.714.430.7-35.07.214.521.9
S&P/TSX Total Return1.4-6.8-2.317.635.1-33.09.817.324.1
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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