This Canadian Fund Is Worth Its Fees

02/21/2012 8:30 am EST

Focus: GLOBAL

One thing better than getting a top performer is getting one that’s a great value, too, writes Dave West of The Money Reporter. Because what is 2% if you’re beating the benchmark by 20% or more?

In a separate project, your trusty editor happened upon a certain mutual fund, judging it as a great addition to all the funds we already are responsible for making recommendations on.

We haven’t added a fund, other than this, in several years, and it’s only been in our lineup for less than six months. But because we like it so much, we’re profiling it again.

This new fund belongs in our income/dividend/balanced category. It’s the Dynamic Equity Income Fund A, which has two fund codes. Fund code DYN3522 is the back-end load version, and DYN029 is the front-end load version. We recommend the front-end version.

While it’s relatively new to our roster, this fund has been in existence since January 15, 1968, so it has oodles of past performance data to justify its inclusion. It also has $836 million in assets under administration (up from $715 million when we added it), so it’s been reasonably popular with other investors for a long time, and recently too.

We at The Money Reporter regard management expense ratio (MER) coverage as an important benchmark, especially over various lengths of time. Right now, the Dynamic Equity Income Fund A has a one-year MER coverage of 4.5 times, second only in our income-fund category to the Altamira Income Fund at 7.5 times; the other two funds in the category score a 0.0 on that measure.

One-year MER coverage measures by how many times the fund’s one-year return exceeds the fund’s MER. This Dynamic fund has made 9.62% in the past year (the S&P/TSX Composite Index is down 8.81% in that time), and because its MER is a not insignificant 2.15%, the fund’s return is 4.5 times as high as what it charges in fees.

However, a heftier MER is not a problem if the returns are there. And this fund has them. Take any measure—one month, three, six, year-to-date, one year, three, five, or ten years—this fund’s returns are first quartile across the board.

As an example, this fund’s ten-year compound return is 12.5% compared to its benchmark index return of -8.1%. The one-year return is 8.9% compared to the benchmark’s -12.4%. Those kinds of returns are also why this fund ranks seventh out of 216 peer funds.

A positive return of 12.5% when its comparable index is down 12.4% is worth the slightly higher MER, for sure.

Unlike many of our featured funds, which have no sales charges, this one does, with two choices. The back-end load version is maxed at 6%; the front-end load is maxed at 5%. We recommend the front-end load, and that you negotiate hard for your brokerage firm to lower it for you.

The primary investment objective of this fund is to achieve high income and long-term growth of capital by investing primarily in equity securities that pay a dividend or distribution. That’s definitely income-investor friendly.

Its strategy is to invest primarily in units of a wide range of equity securities, such as dividend- or distribution-paying equity securities and real estate investment trusts on a global basis, as well as in other types of equity and/or debt securities including limited partnerships, master limited partnerships, and high yield, corporate, convertible, and government bonds and money market instruments. That’s diversification.

The fund manager, since July 2001, has been Oscar Belaiche. He’s well-known on the Street, and the recent returns are all his doing. He works on this fund on behalf of Goodman and Co. Investment Counsel, which has long been associated with the Dundee group of companies, and which recently hooked up with Bank of Nova Scotia (BNS).

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