These income funds are getting attention in today’s environment

With the recent volatility in the equity markets, many investors have been walking a tightrope between choppy equity funds and the uninspiring performance of many bond and income funds. One area to consider is income funds that also offer some growth potential.

Different type of income fund

These income funds are specifically structured to offer a combination of reasonable growth potential along with income:

1. Income allocation funds.
These funds invest in a variety of fixed-income securities with modest exposure (usually) to dividend-paying equities. They may also invest in similar foreign securities. In addition, some of these funds are structured to pay out tax-preferred income, making them suitable for your non-registered portfolio.

2. Monthly income funds.
These are sometimes called “high-income funds,” and they may augment their fixed-income holdings with dividend-paying stocks and other equities. In some cases, the asset mix may be closer to that of a balanced fund than an income fund. For this reason, it’s especially important with these funds to get the balance right not only in picking the right fund, but also within the context of the rest of your portfolio.

3. Global bond funds.
These funds have a mandate to invest in a spectrum of foreign fixed-income securities. Their exposure to a variety of economies and currencies enables you to tap into growth opportunities outside of Canada. In addition to international diversification, they may also offer a hedge against rising interest rates in our own domestic economy.

Greater volatility

Because these income funds offer some growth potential, they may experience more volatility over the short term than traditional straight-up income funds. Remember: In the investment world, higher potential returns are always accompanied by greater risk. This is partly due to the securities they hold. These funds may hold bonds issued by companies that are not as stable as solid blue-chip corporations. As well, they may be more tactically managed than some traditional bond funds. In other words, the fund manager may move in and out of assets more frequently in order to protect against risk or try to capture gains.

Managing the risk

To help reduce the impact of short-term volatility on your portfolio, consider the strategy of “averaging” into these funds. Rather than buying with a single lump sum, spread your initial investment over a period of months to take advantage of dollar-cost averaging. As the price fluctuates, you’ll purchase more fund units when the price is lower, and fewer when it is higher. This approach can result in a lower average cost per unit. If it’s time for you to consider these “income plus a little growth” “investments, we are here to help. Together, we can review the candidate fund’s objectives and its individual securities to make sure they’ll work effectively with the rest of your portfolio. 

Mutual funds provided through FundEX Investments Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual Funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. This information has been prepared by Peter Marchl who is a representative for FundEX Investments Inc., and does not necessarily reflect the opinion of FundEX Investments Inc. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.

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