The conservatively managed Sentry Conservative Balanced Income Fund has been run by the team of Michael Simpson and James Dutkiewicz since 2012, and performance, particularly on a risk-adjusted basis, has been strong. For the three years ending September 30, this two-time Fundata FundGrade® A+ Award™ winner returned an average annual compounded 6.4%, slightly outpacing its peer group. However, factor in the fund’s volatility, which has been well below average, and you get a Sharpe Ratio that is much higher than the category average. And that’s a good thing.
The Sharpe ratio is a measure of a fund’s excess return over the risk-free rate compared with the fund’s volatility measured by standard deviation. A higher Sharpe ratio is normally preferred. This indicates a higher return for the amount of risk demonstrated by the fund. The Sentry Conservative Balanced Income Fund boasts a 3-year Sharpe Ratio of 1.29.
The asset mix is pretty close to balanced, with 49% equity, 46% bonds, and 5% in cash as of the end of September.
The fixed-income sleeve is heavily weighted towards corporate bonds, which make up more than half of holdings. While the focus is on investment-grade issues, about one quarter is invested in high-yield bonds. On the whole, the bond sleeve offers investors a higher yield than the FTSE/TMX Universe Bond Index with a lower duration. This positioning may help explain some of the fund’s recent underperformance, where longer-dated bond issues have rallied higher after the Bank of Canada’s surprise rate cut in January.
The equity portion is managed in a similar way to the highly regarded Sentry Canadian Income Fund, although this fund’s smaller size allows it to take more of an all-cap approach. It is also able to invest outside of Canada, and currently has about 20% foreign exposure, with the bulk of that coming in the form of U.S. equities.
Top equity holdings as of the end of September included Republic Services Inc. (NYSE: RSG), United Parcel Service Inc. (NYSE: UPS), Oracle Corp. (NYSE: ORCL), and AltaGas Ltd. (TSX: ALA).
The fund is also a decent choice for those looking for cash flow. It pays a monthly distribution of $0.0375 per unit, which works out to an annualized yield of 3.7% at the recent NAVPS of $12.10. The MER is 2.23%, which is above the average Canadian Neutral Balanced Fund.
There are two things about this fund which cause me some shorter term concern. The first is the fixed-income portfolio, which is better suited to a flat or rising yield environment, which is in doubt, particularly in Canada. The other concern is its energy exposure at a 9% weighting. While a lot of the energy selloff was overdone, it may result in higher volatility levels in the future.
Still, I feel this is one of the stronger balanced offerings available, and a good option for risk-averse investors.
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.
