Friday, May 22, 2015

A new monthly income fund to consider

I have a soft spot in my heart for monthly income funds. The MERs are not screamingly high but they are still uncomfortable. Some of these MERs are in the 1.5% range. What makes these funds attractive is that whenever the market dives, as it does now and then, these funds hold more of their value than other not-so-well-balanced funds. One can plan on sleeping at night if one keeps money in these investments.

One of my favourite monthly income funds, the TD Monthly Income, charges a MER of 1.47% and has yield of 1.46%. Although Morning Star rates it a four star fund, it has careened from the 4th percentile to the 1st in the past six months. On one hand it appears to be regaining its footing; on the other hand Year To Date (YTD) it is only up .61%. This is on the low side and not what I have come to expect from the fund.

I've been looking at Purpose Monthly Income Fund (PIN) as a better place to park my retirement money while minimizing volatility. The MER for PIN is .95%. High for an ETF but still better than my personal benchmark, the TD Monthly Income fund. The dividend yield today is 4.81% which is more than I need in order to live in retirement and is much better than the TD offering. And PIN is up 1.6% YTD. Another bonus.

Now, I am surprised at how little PIN has grown this year considering the mix. And I am surprised at how closely both PIN and TDB622 track when graphed. PIN is on top more than the TD fund but not by so much as to have any bragging rites.

So what is the PIN mix? Well, it is split between cash, bonds and equities with the biggest chunk of equity investment in the States, followed by Canada and then Asia and Europe. I'd have thought that PIN would have fared much better than the TD fund considering that the TD fund has essentially no money invested outside Canada.

The biggest downside to PIN is its size. The ETF has only about 12.9 million in total net assets. I believe PIN must grow if it is to survive. TDB622, on the other hand, has 6.8 billion in total net assets.

I'd like to see PIN show some signs of growth, of attracting investor interest, before adding it to my portfolio mix.

The difference is in the cash yield

I have a little money growing in a tax free savings account. At age 71 at one is forced to begin liquidating one's RSPs on a schedule dictated by the government. It is good to move as much of that RSP money into a TFSA as possible. I've started.

In the graph above my TFSA is the blue line. As you can see, since opening the account, I have, for the most part, stayed above the S&P/TSX Composite and the S&P/TSX 60 Index. The big difference, I see it as an advantage, is that I have realized more of my growth in cash than those benchmark indexes. Why? Because all the investments are dividend paying stocks. One equity, before the dividend was cut, had a better than 11% yield.

With my investment up more than 20%, I'm thinking I might be bold and put the growing cash into PIN. PIN is the Purpose Monthly Income Fund. It is a nicely balanced ETF with both Canadian and U.S. equities plus a nice assortment of bonds. It yields almost 5% in cash annually.

With interest rates remaining so very low, it can be difficult for a retiree to find adequate cash income without taking on more risk than one would like. So far, I've been lucky. I've taken on the risk and I've been very nicely rewarded. After more six years in retirement, it would take a heck of a downturn to drop my portfolio into the red compared to where I entered the market.

p.s. Two of the big movers in my TFSA are Norbord and Royal Bank. As the U.S. economy continues to improve, the housing starts in the States should keep growing and this should pull my Norbord stock to new heights.