A reader emailed me asking about the differences between the big bank monthly income funds as they all seem to have one. At first glance, they are all fairly similar with mostly Canadian exposure invested in a combination of dividend paying equities and bonds. However, digging a bit deeper, there are noticeable differences in terms of cost, distributions and performance.
To get an accurate picture, I surfed over to the morning star website to do some research on the various monthly income funds. Here is a summary of what I found (as of June 30, 2009):
|Morning Star Rating||4||5||3||4||4|
|Div / Share||$0.88||$0.57||$0.50||$0.42||$0.72|
|10 Year Return||7.50%||7.50%||not avail.||7.50%||4.80%|
|Net Assets (millions)||$5604||$6,235||$646||$3,614||$4,463|
|Foreign Exposure||none||none||6% US||none||none|
Looking at the table, it seems that each fund has their pros/cons. RBC seems to be the lowest cost with the highest morning star rating, but with a lower distribution relative to the rest. I personally own CIBC Monthly Income which seems to be in the middle of the pack with an above average distribution. If I were to pick an income fund today, it would probably be the BMO Monthly Income Fund. They have been paying $0.72 dividend /share for years now which works out to be a fairly high yield at today’s price (NAVPS).
It’s worthy to note though that each of these funds have a significant bond allocation which should be accounted for in your total portfolio asset allocation. As well, since bond distributions are considered interest income, it may be the most tax efficient route to hold these funds within an RRSP or TFSA.
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