For several months, the stock markets have seen considerable volatility, and low bond yields are adding to the challenges investors must cope with. For example, Canadian bonds are scarcely beating the rate of inflation, with an average 2.02% yield to maturity (FTSE TMX Canada Universe Bond Index as at April 30, 2016).
Even though yields on core fixed income are low, such securities are essential to ensure portfolio stability. According to the principle of diversification [PDF], they reduce the volatility of riskier asset classes, such as equities. So what should an investor do? Can you diversify your portfolio and also obtain a higher potential return? The strategy: diversify Canadian bonds
Like equities, fixed income securities carry their own risk and have to be diversified to stabilize or even increase a portfolio’s returns. A flexible strategy that focuses on diversification of Canadian bonds is therefore appropriate in an environment of low bond yields. In brief, allocating your assets between fixed income and equities is all well and good, but it’s even better to diversify within each asset class. And that also holds true for income securities.
One of the ways to diversify Canadian bonds is to invest in fixed income securities on the basis of varied levels of credit risk and geographic areas, including global bond markets. It’s also possible to invest in different asset classes that generate income, such as preferred shares and income trusts.
In this uncertain context, Gestion FÉRIQUE recently launched the Diversified Income Fund. Its objective is to provide income and, to a lesser extent, long-term capital appreciation.
To that end, the Fund invests in a portfolio that is diversified by geographic area and asset type, and consists mainly of fixed income securities but also Canadian and international equities. In this way, Canadian bond holdings can be diversified with foreign content, in addition to other types of income-generating securities.
Here is the Fund’s long-term target allocation:
|Fixed income securities 90%
Equity securities 10%
Money market securities 0%
The weightings of these asset classes may vary according to the portfolio manager’s economic views and the market’s fluctuations, in the following proportions:
|Canadian and foreign fixed income securities*||75 % to 95 %|
|Canadian and foreign equities*||5 % to 15 %|
|Money market securities||0 % to 10 %|
* or exchange-traded funds offering such exposure
This tactical asset management gives the manager the flexibility to adjust the proportions of the components in the portfolio. The Fund’s asset class selection, combined with tactical management, is used to generate income and also take advantage of market opportunities.
The Fund is managed by the experts at Addenda Capital Inc. (Addenda Capital) and their partner Rogge Global Partners Plc (Rogge). Addenda Capital has been involved in managing the FÉRIQUE Funds since 1998, and Rogge is a global fixed income specialist.
And, as for all FÉRIQUE Funds, the management fees are among the lowest in the Canadian investment fund industry. The management expense ratio (MER) of the FÉRIQUE Diversified Income Fund was 0.95% as of its launch date, May 16, 2016. The median MER of the similar funds in the same category was 2.01% as of April 30, 2016, according to Morningstar.
To learn more about how you can take advantage of the FÉRIQUE Diversified Income Fund, contact FÉRIQUE Investment Services. One of our representative can give you all the details on this new Fund and suggest a strategy tailored to your situation and investor profile. You can also access the prospectus as well as the Fund Facts.
FÉRIQUE Investment Services
1-800-291-0337 (outside Montreal)
From Monday to Friday, 8:00 a.m. to 8:00 p.m.