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fund cruncher

WHAT ARE WE LOOKING FOR?

Balanced funds with the top returns over three years.

These funds, which invest in stocks and bonds, were high on investors' shopping lists in January, according to the Investment Funds Institute of Canada (IFIC). This fund category took in more than $2.3-billion in net sales last month.

TODAY'S SEARCH

We screened for the best 30 returns over three years ended Jan. 31, 2010. That would incorporate the 2008 market meltdown, and last year's sharp rebound. We looked at Canadian neutral balanced, Canadian equity balanced, Canadian fixed-income balanced, global neutral balanced, global equity balanced, global fixed-income balanced and tactical balanced funds.

U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded.

WHAT DID WE FIND?

Most of the best returns came from Canadian fixed-income balanced funds.

This category limits equity investments to less than 40 per cent. The high bond component helped during the 2008 market crash. And domestic securities fared better than foreign stocks that had to be converted to Canadian dollars.

But three funds with even greater equity exposure still topped the list. Middlefield Income Plus was the leader with an average return of 7 per cent over three years. Lakeview Disciplined Leadership High Income and Fidelity Monthly High Income posted average annual gains of 4.5 per cent and 4.4 per cent, respectively.

Robert Lauzon, who runs Middlefield Income Plus, attributed part of his performance to being overweight in energy names such as Arc Energy Trust and Bonavista Energy Trust as well as holding some gold stocks such as Goldcorp, Barrick Gold and Kinross Gold. "In 2008, I probably had about 15 per cent in cash most of the time so that would have helped a bit," said the manager with Middlefield Group.

"When bond spreads widened in late 2008 and early 2009 … I moved money from some government and bank bonds into more of the high-yield category because the spreads were so wide that I found them to be very good value," he added. "Throughout the last year, those spreads have come back and narrowed, which has obviously helped the performance on my bond portfolio as well."

Mr. Lauzon owns a lot of stocks that pay dividends and distributions. They include names such as BCE, TransAlta, Enbridge, Arc Energy and Bonavista. "A lot of the names that I hold pay 4-to-8 per cent in dividends," he said. "So just over three years, all of that accumulates in the fund."

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