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Fund in Focus: Manulife Monthly High Income Fund
9/22/2018 10:38:48 PM
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DUE DILIGENCE
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By Dave Paterson  | Wednesday, September 12, 2018


 



Co-managed by Alan Wicks and Jonathan Popper, Manulife Monthly High Income Fund has long been a favourite of mine, and a perennial winner of the annual FundGrade A+® Award. But it had been closed to investors since August 2015. However, Manulife reopened it to new investors this past January, as management believes they can effectively implement their process at the current $8.9 billion in assets under management (AUM) for all classes of the fund combined.

For the equity space, the managers use a bottom-up, fundamentally-driven process that seeks out businesses of any size with high returns on invested capital. Each investment candidate is scored on a number of fundamental factors.

A deeper due diligence review then includes meetings with management and generating an estimate of fair value. Buy and sell prices are also determined, and position sizes are actively managed based on real-time valuation levels. Surprisingly, turnover levels have averaged a modest 70% for the past three years.

The fixed-income sleeve is managed using a combination top-down economic review and bottom-up credit analysis. The fund aims to generate returns by focusing on sector allocation, credit quality, and individual credit selection. Managers aim to mitigate risk with active management of the portfolio’s yield curve and duration exposure.

At the end of July, roughly 32% of the portfolio was in bonds, 13% in cash, and 54% in equities (with the bulk, about 72%, in Canada and 23% in the U.S.).

Performance has been excellent, with the fund delivering an impressive 5-year average annual compounded rate of return of 7.7% to July 31, handily beating both its index and peer group. Volatility numbers have been lower than the index and peers, and the managers have done an excellent job protecting capital in down markets. Still, the way the portfolio is built, there will be periods when it lags, which is what happened in 2016, when it trailed the index and peer group.

This is a strong balanced offering, and remains one of my favourites. While the managers have sufficient runway to implement their strategy with the current AUM, I will continue to monitor the fund closely for any erosion in the risk-reward profile, particularly if inflows are robust.

Manulife Monthly High Income Fund
Fund company:
Manulife Investments
Fund type:
Canadian Neutral Balanced
FundGrade Rating: A (July)
FundGrade A+ Awards: 2013-2017
Style: Large Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Excellent
Manager: Alan Wicks and Duncan Anderson since Sept. 1997
MER: 2.01%
Fund code: MMF583 (front-end load)
Minimum investment: $500

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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