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New mutual funds focus on retirees’ needs for monthly income

by Wayne Cheveldayoff, 2006-06-08

A number of new mutual funds launched recently focus on providing monthly income to retirees. The fund companies say they are simply responding to feedback from investors and how people approaching or in retirement think of their income needs.

BMO Mutual Funds said in early June, at the time it added two monthly income funds, that a comprehensive survey on Canadian retirement suggests the growing importance of monthly income for baby boomers.

The BMO Retirement Trends Study found 54 per cent of Canadian financial decision-makers 45 years of age and older think they know how much money they will need in retirement.

Of these respondents, 66 per cent consider their retirement income needs from a monthly perspective, not as an annual figure or lump-sum dollar amount as commonly used in the financial planning industry.

BMO says its new funds provide more choice to the boomer investor who is seeking a consistent stream of income each month from their non-registered investments.

The BMO Income Trust Fund will focus on providing monthly distributions from a portfolio of Canadian income trust securities, such as oil and gas royalty trusts, real estate investment trusts and business income trusts.

The new BMO Diversified Income Trust will invest primarily in Canadian and foreign fixed-income and equity securities, income-trust securities and high-yield bonds.

Both BMO funds offer tax-efficient income (combining interest and business income, capital gains and return of capital) with a distribution currently fixed at $0.06 per unit/per month.

In announcing its latest offering, Mackenzie Investments also cited feedback from investors, noting that “investors continue to look for solid income-related investment products, both in Canada and around the world.”

The new Mackenzie U.S. Dividend Income Fund aims to achieve a combination of income and long-term capital growth by investing primarily in large-cap, dividend-paying U.S. companies. Investors can choose to be “hedged” or “unhedged” with respect to the Canada-U.S. exchange rate. Its initial monthly distribution will be at an annual rate of 5 per cent.

The newly introduced, actively managed funds join a number of others already providing monthly income to unitholders and some decent overall returns.

One of the largest, RBC Monthly Income, with $8.4 billion in assets, investments in a mix of stocks, bonds and income trusts. It achieved a total return of 15.38 per cent in the year ending April 30, 2006 and an average annual return of 11.18 per cent over five years, according to

CIBC Monthly Income Fund, with $5.6 billion in assets and a similar investment mandate, achieved a return of 19.69 per cent over one year and an average annual return of 12 per cent over five years.

Fidelity Monthly Income Fund, launched in November 2003 and with $443 million in assets, recorded a one-year return of 18.63 per cent.

For those with smaller portfolios, the monthly funds offer a broad diversification in the income field. Among the securities managers chose from are corporate and government bonds, preferred and common shares and the different types of income trusts covering the commodity, real estate and general business sectors.

Your returns from holding units in monthly income funds will definitely depend on the manager you choose. GlobeFund says Canadian income funds as a group recorded average annual returns of 12.24 per cent for one year and 7.18 per cent for five years – well below the performances turned in by the three funds cited above.

Some actively managed funds have also been able to beat the index, despite the management expenses involved. GlobeFund cites a benchmark blend, weighted 60 per cent to the S&P/TSX Composite Index and 40 per cent to the Scotia Universe bond index, as producing a one-year return of 18.77 per cent and a five-year average annual return of 9.25 per cent.

Also available for those interested in doing some research are a variety of closed-end income funds trading on the TSX. These are managed like mutual funds and many pay monthly income.

If you are willing to take quarterly instead of monthly income payments, you may want to consider the low-fee index funds offered by Barclays Canada. Separate iShares CDN Funds focus on the largest dividend-paying stocks, income trusts, REITS and short-term, broad market and real return bonds.

Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. His columns are archived at and he can be contacted at

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©2006 Wayne Cheveldayoff