Income Fund

March 31, 2019

Market Context

  • The Canadian bond market gained 3.9% in the quarter (interest and capital appreciation).
  • Interest rates declined, with the 10-year Government of Canada yield falling from 2.0% to 1.6%. This was a substantial decline in a low interest rate environment.
  • The Canadian stock market rose 13.3% on the back of strong returns from technology, healthcare, real estate and energy stocks.

Portfolio Specifics

  • The fund had a strong quarter, gaining 5.9%, as bonds, dividend-paying stocks and real estate investment trusts (REITs) had a good start to 2019.
  • Bonds comprise 76% of the fund. Fixed income holdings performed well in the quarter as interest rates fell (reminder: when rates fall, bond prices rise). Investors were willing to pay more for the safety of bonds because of a deteriorating outlook for global growth.
  • The fund holds less in mid-term bonds (5-10 years) than short- (1-5 year maturity) and long-term bonds. This hurt performance a little as prices of mid-term bonds rose more than others.
  • The manager, Connor, Clark & Lunn, has been mindful about the potential for an economic slowdown. CC&L doesn’t believe, however, a recession is imminent, in part because central banks and governments around the world are already responding.
  • The portfolio continues to be defensively positioned. It holds more in government issued bonds (federal and provincial) than those issued by corporations. Although ‘corporates’ are a smaller part of the bond portion of the fund than in past years, they continue to be an important component (40%). The manager’s focus is on high-quality bonds in the financial services, communications, and utilities sectors.
  • Stocks make up 24% of the fund. Sectors of focus include financial services, REITs, oil & gas, and utilities. This part of the portfolio has been an important contributor to performance this year, benefiting from the strong rebound in Canadian stocks in the first quarter.
  • The fund’s equity strategy is focused on companies that are growing their dividend (as opposed to high dividend payers), as well as stocks that will benefit from continued growth in business and infrastructure spending.
  • The fund paid a distribution of $0.045/unit at the end of March.

Positioning

  • The fund’s bond strategy remains cautious. The focus is on higher quality securities that also have good liquidity (i.e., they can easily be bought or sold).
  • Stocks remain an important source of diversification and yield. The manager has a current bias towards larger cap, lower volatility stocks.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.