Goals count as much as manager
The subtleties of mutual funds are often lost on investors, and sometimes even on financial professionals. But they can be extremely important in deciding whether a specific fund is right for your personal needs. Here’s an example.
One of the funds I recommended in 2002 is the Bissett Income Fund, managed by Leslie Lundquist. It is one of the best in the income trusts category. It had a total return of 25.8 per cent in 2003, including cash distributions of $1.07 per unit.
However, the fund is now closed to new investors. Those who already have positions can add to them, but what about the folks who missed out? Well, Franklin Templeton (who now own Bissett) recently announced the creation of the new Bissett Income Trust and Dividend Fund, of which about 60 per cent will be under the management of Ms. Lundquist. However, if your initial impression is that this will be a clone of Bissett Income, look again.
The most obvious difference is that about 40 per cent of the portfolio will be invested in dividend-paying common stock. Those assets will be selected by co-manager Juliette John, who also runs the Bissett Dividend Income Fund.
But there&#827;s a more subtle difference that you need to understand. The criteria that Lundquist uses to select income trusts for this portfolio is different from the one she employs with Bissett Income.
The reason is that the two funds have somewhat different objectives. The primary goal of Bissett Income is steady cash flow. The fund pays out 8c per unit each month and Lundquist’s selections therefore focus on trusts that are likely to provide steady and dependable distributions. Names on her top 10 list that do not show up among the largest positions in the new fund include Canadian Real Estate Investment Trust (TSX:REF.UN), RioCan REIT (TSX:REI.UN), and Pembina Pipeline Income Fund (TSX:PIF.UN).
The new fund, by contrast, is more of a capital appreciation play. Although the fund is expected to generate cash flow in the 3 per cent to 5 per cent range, it is designed to have greater capital gains potential than Bissett Income. As a result, Lundquist puts more emphasis on that side of the equation when she assesses the marketplace.
Look at selections in context
Since she is widely regarded as one of Canada’s most astute trust analysts, it’s worth taking a look at some of her selections in that context. Leading the list is Bonavista Energy Trust (TSX:BNP.UN), with a 1.34 per cent position in the portfolio. This is a relatively recent entry in the trust field, created in mid-2003. It currently pays a monthly distribution of 25c a unit and trades at $20.95 for a yield of 14.3 per cent.
Lundquist also likes two seafood trusts, Clearwater Seafoods Income Fund (TSX:CLR.UN) and Connors Brothers Income Fund (TSX:CBF.UN), which is the world’s largest producer of canned sardines.
Also on her list is the Davis + Henderson Income Fund (TSX:DHF.UN), which I recommended almost exactly a year ago in my Internet Wealth Builder newsletter at $12.80. It now trades at $17 and I rate it as a Hold, but Lundquist seems to feel there is more capital gains potential here.
So there you have it. Two Bissett funds that appear on the surface to be similar in character but which in fact are quite different. Bissett Income is a perfect fit for an income-oriented portfolio, including a RRIF. Bissett Income Trust and Dividend Fund is better suited to a non-registered account in which some income would be welcome but where modest capital appreciation at relatively low risk is the primary goal