Expect more innovative income-oriented funds to be hatched at Canadian investment firms.
With some investors still jittery about stock markets, and others seeking yield as the income trust market keeps shrinking, this niche is about to growing bigger.
The mutual fund arm of CI Financial launched its new Signature Diversified Yield Fund on Friday, saying that this vehicle aims to provide returns from an exposure to a portfolio of fixed-income and high-yielding equity securities around the world.
The CI fund includes high-yield corporate bonds, real estate investment trusts and other securities in the real estate, infrastructure and telecommunications sectors.
"The sectors we are targeting all suffered during the credit crunch," says Eric Bushell, lead portfolio manager and chief investment officer of Signature Global Advisors. "As these sectors reorganize, and confidence and asset values recover, we see excellent opportunities for growth, as well as compelling yields."
Signature Diversified Yield will target monthly distributions initially of 6 per cent a year. CI said the distributions will be tax-efficient because there will be capital gains, which are taxed at a lower rate than interest income, and return of capital, which is generally not subject to tax although it will reduce the adjusted cost base of units.
CI sees this kind of fund appealing to investors looking for an alternative to holding cash, but are worried about market volatility.
Earlier this week, CI's chief executive officer, Bill Holland, told analysts during the third-quarter conference call that he sees a reticence among investors to jump back into stock funds even though there has been a spectacular rebound after last year's market collapse.
"When you look at the industry as a whole, I think that the one thing that we haven't seen yet is the stampede of retail investors into the market," Mr. Holland said. "I think that's just a result of the fear level that became palpable…at the middle of spring of this year…
"Two bear markets of almost 60 per cent in seven years just changes people's risk appetites."