Signature funds impress

The CI organization offers a lot of good funds but you won’t find any better than those in the Signature group. Of the seven Signature funds with a track record of more than three years, a total of five have received my top rating of $$$$. That’s an impressive achievement and the credit goes to Eric Bushell who directs the Signature line and manages or co-manages most of the funds. There are several reasons why the Signature group has earned these high accolades. They include:

High performance: Most of the funds show above-average returns for their categories over all time periods. The notable exception among the $$$$ funds is Signature Dividend but that’s only because it’s a classic dividend fund with a large preferred share component. Such a fund will never outperform dividend funds that focus on common stocks (as most of them do) except in bad markets.

Consistency: Most investors like funds that don’t produce a lot of surprises. The Signature funds fit the bill. They are steady and predictable, but if you think that adds up to dull, think again – unless you consider watching your money grow by leaps and bounds to be “dull”.

Reasonable risk: Bushell’s approach is low-key and conservative. That translates to performance numbers that are well above average in strong markets and while providing good protection of your capital when things turn sour. I was especially impressed to see that the Signature Canadian Resource Fund made double-digit gains in every year of the 2000-2002 bear market.

Here are capsule reviews of three of the Signature funds that received my top score. Check with a financial advisor to see if any meet your needs.

Signature Canadian Resource Fund. All Canadian resource funds have been churning out good returns in recent years but this one has done better than most. What is even more impressive is its consistency: it has never failed to deliver double-digit returns in a calendar year since the Signature team took over in fall, 1999. That includes the period of the 2000-2002 bear market, making this an amazing run. The focus is on large-cap stocks like EnCana, Suncor, Canadian Natural Resources, Petro-Canada, and Alcan so you’re buying the cream of the Canadian resource crop when you invest in this portfolio. You’re also getting good international exposure; one-third of the portfolio is invested in US and overseas companies. The fund generated an average annual compound rate of return of 34.1 per cent for the three years to April 30, well ahead of the average of 28 per cent for the peer group. Volatility was slightly better than the category average, although in relative terms this is a high-risk category by definition.

Signature Dividend Fund. If you’re looking for a classic dividend fund, here it is. The fund invests in a combination of common and preferred shares and makes monthly cash distributions to unitholders, which are currently running at the rate of 4c a unit (there is also a year-end capital gains distribution). The bulk of the portfolio is invested in common stocks such as the major banks, Enbridge, Manulife, and TransCanada Corp. There is also a significant preferred shares component, which is what sets this apart from most other dividend funds. In 2006, all of the payments qualified for the dividend tax credit or for capital gains treatment, so not one cent was taxable at full rate. This means investors who hold units in non-registered portfolios will receive more after-tax cash flow. The other major plus is a good safety record. This fund rarely loses money in a calendar year and when it does the loss is very small (it dropped 2.3 per cent in 2002). The volatility rating is much better than average for the category. There is a trade-off, however. Because of the high percentage of preferred shares in the portfolio, the fund’s total return is well below average for the Canadian Dividend and Equity Income category over all time periods. Preferred shares tend to show little price movement up or down which is great if you’re looking for stability and protection of principal but not so good if you want growth. You decide.

Signature Canadian Balanced Fund. Eric Bushell and his CI Signature team assumed responsibility for this former BPI fund in mid-2002 and ever since then it has flourished, never turning in less than a second-quartile performance in any calendar year. The current weighting of this impressive balanced fund is in favour of equities, which comprise 63 per cent of the portfolio, with bonds and cash making up the rest. You also get excellent international diversification here with significant holdings in US and overseas stocks. The fund gained 11.4 per cent for the year to April 30 well above the 7.8 per cent average for the Canadian Balanced – Equity Focus category. Longer-term numbers are also well above par, with the fund showing a three-year average annual compound rate of return of 15 per cent. As a bonus, this fund also offers monthly cash flow at a rate of 2.5c per unit (30c a year). The risk rating is about average. Under Bushell’s leadership, this has evolved into a first-class balanced fund and I highly recommend it.

Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter edited and published by Gordon Pape. For details on a three-month trial offer, go to