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CI Signature High Income Fund delivers yield, keeps volatility in check

When I think of best-in-class funds in the Global Neutral Balanced category, the CI Signature High Income Fund is usually at the top of my list.

When I think of best-in-class funds in the Global Neutral Balanced category, the CI Signature High Income Fundis usually at the top of my list. Managed by the CI Signature team of Geof Marshall, Ryan Fitzgerald, and Joe D’Angeloat, the fund has consistently been one of the strongest performers in the category, yet at the same time has tended to be one of the least volatile.

For the five years ending Aug. 31, it gained an annualized 8.0%, outpacing its peer group. Even more impressive is that this was done with significantly less volatility, with a 3-year average standard deviation of 4.4%, giving it a Fundata volatility ranking of 2/10. It has also done an excellent job of protecting capital in down markets, with a downside capture ratio that is negative. This indicates it was likely positive when the index fell.

The portfolio is a mix of high-yielding equities and high-yield bonds. Historically, it could invest up to 49% outside of Canada, but that was recently changed to 70%, allowing the managers even greater flexibility. This may come in handy once we see interest rates start to trend higher, giving the managers the ability to find more opportunities abroad. It should also help to reduce the interest rate sensitivity of the equity portfolio, which has in the past been highly concentrated in REITs and energy income plays.

Top equity holdings currently include Citigroup Inc. (NYSE: C), Singapore Telecommunications Ltd. (SGX: Z74), Transurban Group (ASX: TCL), Algonquin Power & Utilities Corp. (TSX: AQN), and Vereit Inc. (NYSE: VER).

At the end of August the fund held approximately 13.7% in cash and equivalents. The fund is actively managed and the managers are typically not afraid to use periods of volatility as an opportunity to improve the quality of the portfolio. This relatively high cash balance will certainly help them to do that after the most recent bout of volatility. 

The fund pays a monthly distribution of $0.07 per unit, which works out to an annualized yield of approximately 6.0%. This makes it a solid choice for those looking for modest cash flow, while providing the opportunity to generate attractive risk-adjusted returns over the long term.

This remains one of my favourite funds in the Global Neutral Balanced category.

Courtesy Fundata Canada Inc. © 2015. Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc. This article is not intended as personalized advice. Investments mentioned are not guaranteed and carry risk of loss.