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Balanced funds that held up under pressure

rcarrick@globeandmail.com

What we're looking at

Amid tense financial market conditions, balanced funds remain the most popular choice of investors by far. The mix of stocks and bonds in these funds clearly offers some comfort. But which Canadian balanced funds have managed the financial market volatility of the past few years the best? For answers, let's consult the independent mutual fund analyst Dave Paterson of D.A. Paterson & Associates Inc.

Our screen

Mr. Paterson says his focus in evaluating funds is their ability to manage volatility. For this screen, he applied two measures:

Standard deviation: Shows how much variation there is in a fund's monthly gains and losses; only funds with a five-year standard deviation of less than 12 made the list (the lower the number, the better).

Sharpe ratio: Adjusts returns for the amount of risk being taken on; funds presented here have a five-year ratio of more than 0.13 (the higher the ratio - devised by economist William Sharpe - the better the blend of risk and return).

Other factors built into this screen: Management expenses ratios had to be below 2.25 per cent, fund-of-fund products were excluded and upfront investment requirements had to be $25,000 or less. Note: GBC funds have a $100,000 minimum, but Mr. Paterson said a $10,000 minimum applies when the company's funds are bought through an investment dealer rather than direct from GBC.

What we found

There are three different categories of Canadian balanced funds - one with an emphasis on stocks, one with roughly equal amounts of stocks and bonds and one that mainly holds bonds. Given how bonds have outperformed stocks over the past five years, it's not surprising that this latter category produced the most funds in our screen results. Looking ahead, balanced funds with an emphasis on stocks would be best positioned for an economic rebound and stronger stock market conditions.

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FUNDS THAT FIGHT VOLATILITY

TotalMin.5 Yr5 Yr.
AssetInvst.StandardSharpeReturns to June 30 (%)
FundCategoryMER (%)($ Mil.)($)DeviationRatioYTD1 Year2 Year3 Year5 Year10 Year
FMOQ Monthly IncomeCdn Equity Bal1.0147.45009.30.290.40.66.89.53.9
GBC Growth and IncomeCdn Equity Bal1.733.310,00011.00.206.05.714.214.63.1
Middlefield Income Plus ACdn Equity Bal2.082.51,0008.90.621.61.56.811.66.99.4
TD Monthly Income ICdn Equity Bal1.55,956.410010.10.182.52.07.59.42.98.3
Caldwell IncomeCdn Fixed Inc Bal1.314.35004.10.521.9-1.12.43.83.73.7
Fidelity Income Allocation BCdn Fixed Inc Bal1.8972.550010.60.402.75.89.414.25.4
HSBC Monthly Income InvCdn Fixed Inc Bal1.5816.25005.50.212.6-0.34.05.22.6
Mac Sentinel Income ACdn Fixed Inc Bal1.91,392.65005.60.221.42.75.56.32.65.0
Manulife Structured Bond ClassCdn Fixed Inc Bal1.767.25004.30.702.34.74.96.34.6
SEI Income 20/80 Class PCdn Fixed Inc Bal1.983.81,0004.50.481.83.85.35.83.7
SEI Income 30/70 Class PCdn Fixed Inc Bal2.148.91,0005.50.201.82.55.25.62.5
Steadyhand IncomeCdn Fixed Inc Bal1.066.910,0005.60.943.67.28.610.97.0
BMO Monthly IncomeCdn Neutral Bal1.64,733.85007.20.170.80.45.96.62.55.3
Fidelity Canadian Balanced BCdn Neutral Bal2.16,691.05009.50.201.6-0.66.67.53.06.6
Fidelity Monthly Income BCdn Neutral Bal2.16,386.55008.70.383.33.99.811.94.6
RBC Monthly IncomeCdn Neutral Bal1.28,119.15007.00.322.12.26.77.33.67.3
Source: D.A. Paterson & Associates Inc.

© 2007 The Globe and Mail. All rights reserved.

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