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By Dave Paterson  | Wednesday, March 22, 2017

Dividends have been shown to be a key contributor to the long-term returns of equity funds, and the BMO Monthly High Income Fund II is one of the stronger Canadian dividend fund offerings out there. Managed by the team of Kevin Hall and Michelle Robitaille, it invests mainly in high-yielding common equities and real estate investment trusts (REITs).

The managers look for potential investments among the higher-yielding names of the S&P/TSX Composite Index. While dividends are a key criterion in their research, they are careful not to sacrifice quality to chase yield. The fund holds around 40 names, with the top 10 making up about a third of the fund.

As of Feb. 28, top holdings included Toronto-Dominion Bank (TSX: TD) at a 5.5% portfolio weighting, Bank of Nova Scotia (TSX: BNS) at 4.6%, Royal Bank of Canada (TSX: RY) at 4.5%, Pembina Pipeline Corp. (TSX: PPL) at 4.2%, and Enbridge Inc. (TSX: ENB) at 4.1%.

The fund has significant exposure to higher-yielding energy names, financials, and REITs. Combined, these three sectors make up more than 70% of the fund. As a result, concentration is a potential concern with the fund, and in large part helps explain recent performance.

With energy names under pressure in 2014 and 2015, so too was this fund. But in 2016, with both energy issues and REITs showing renewed strength, this offering had been one of the stronger performers. In 2016, the fund returned 19.79%, putting it in the second quartile for calendar year performance. Longer term, performance has been around average, with a 5-year average annual compounded rate of return of 6.23%, compared with 7.20% for the S&P/TSX Composite Total Return Index. However, both volatility, at a 3-year average standard deviation of 7.75%, and downside participation have been lower than the peer group, resulting in better-than-average risk-adjusted returns.

Looking ahead, increasing stability in the energy market should continue to be a tailwind for this fund. I would expect that over the longer term, this fund should continue to deliver average or better returns with lower volatility. It can also be a great source of cash flow, paying a monthly distribution of $0.06 per unit, which works out to an annualized yield of 5%.

BMO Monthly High Income Fund II Advisor Series
Fund company:
BMO Investments Inc.
Fund type: Canadian Dividend & Income Equity
FundGrade™ Rating: C (February)
Style: Large Cap Blend
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Kevin Hall since March 2012; Michelle Robitaille since March 2012
MER: 2.14%
Fund code: GGF 619 (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

© 2017 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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