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Contrarian attitude helped fund satisfy craving for yield

What are we looking for?

Low interest rates over the past few years have driven yield-craving investors toward Canadian dividend and income equity funds. Which funds fared the best in the past year?

The screen

We looked for the best performers in the asset class for the year ended March 31. U.S. dollar, segregated and duplicate versions of the funds were excluded.

What did we find?

In an asset class that has seen positive fund flows and benefited from relatively strong markets, all the funds in the screen beat the S&P/TSX Total Return index by a healthy margin.

The Trimark Canadian Plus Dividend Class posted the strongest return, with an annualized gain of 22.3 per cent. The fund has 70 per cent of its holdings in Canada, 14 per cent in the U.S. and the rest spread internationally.

A contrarian attitude has helped the Trimark fund's performance.

"We've been more or less fully invested over the past few years, so where some people were running scared of the market, we saw opportunities and took advantage of them," said Rory Ronan, vice-president of Trimark Investments and one of the fund's three managers.

While Canadian dividend and income equity funds do get some of their returns by way of dividends or distributions, they also tend to move with the stock market. But Mr. Ronan said he's more concerned with individual stocks than the macro picture.

"Paying attention to the balance sheet and valuations - that makes sure you protect the downside," he said.

The strategy paid off when the fund heavily weighted Progress Energy Resources Corp. before it was bought by the Malaysian state-owned energy company Petronas. A year ago, amid low gas prices, Progress's valuation was discounted and Mr. Ronan and his team thought the time was right to invest.

Other companies such as U.S.-based media and tech company Comcast Corp., and paper and lumber company West Fraser Timber Co. Ltd., both helped boost the fund's performance.

Looking ahead, the firm is sharpening its pencils and looking closely at resource stocks in Canada.

The sector has struggled in the past couple of years but Mr. Ronan said he has started to see more opportunities in the resource space.



% return (Mar. 31)% returnAssets
Trimark Canadian Plus Dividend Class A22.3%11.8%7.2%17.9%1.4%9.9%26.7%-25.8%2.58122.3
Dynamic Dividend Advantage Fund17.6%6.6%2.0%8.6%14.0%-12.4%14.2%26.4%-31.0%1.57371.7
Manulife Dividend Income Fund16.1%2.37186.9
Beutel Goodman Canadian Dividend-D13.0%9.5%5.6%10.9%1.8%11.1%16.9%-20.6%1.5017.2
PowerShares Canadian Dividend ETFPDC-T12.6%14.5%0.5411.0
First Asset Canadian Dividend Opportunity-A12.3%10.8%11.5%2.28123.2
PH&N Canadian Income-D12.1%8.5%4.0%12.3%-2.9%18.8%42.4%-38.8%1.2281.5
NEI Northwest Canadian Dividend A11.9%8.5%4.8%8.4%9.9%1.2%9.9%16.4%-21.5%2.53112.2
Fidelity Dividend Plus-A11.8%9.6%9.8%9.3%2.9%19.5%45.7%-22.2%2.34341.8
PowerShares Canadian Dividend Index Cl A11.1%7.4%13.0%0.3%10.0%1.82179.3
IA Clarington Strategic Equity Income-Y11.0%5.6%2.2%6.8%9.8%-4.5%9.8%20.1%-27.8%1.90196.6
Scotia Canadian Dividend11.0%5.2%2.6%8.4%7.6%-4.8%11.0%26.0%-27.7%1.683,530.5
CI Signature Dividend10.9%7.0%5.7%6.6%9.6%-0.9%9.4%32.1%-23.0%1.88809.1
Fiera Sceptre High Income Fund Cl B10.9%10.3%4.3%10.8%8.0%0.1%19.1%28.0%-31.5%1.9327.6
BMO Monthly High Income Fund II - Advisor10.8%12.7%7.7%11.8%7.7%10.4%20.7%34.1%-27.9%2.371,102.7
S&P/TSX Total Return6.1%4.9%2.1%10.0%7.2%-8.7%17.6%35.1%-33.0%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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