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OTTAWA (GlobeinvestorGOLD)—Quick, name a blue-chip mutual fund.
Tough one, eh?
While blue-chip stocks abound, funds with the decades-long history of solid performance needed to earn the blue-chip label are few in number. Make that few in number and obscure, too, in some cases.
Yes, some of the oldest, most successful mutual funds in Canada have a public profile that ranges from low to non-existent. A perfect example: Co-operators Canadian Conservative Focused Equity.
Let's define a blue-chip fund as one with a track record of delivering consistently above-average returns and lower-than-average risk over at least a couple of decades. This description fits Co-operators Canadian Conservative Focused Equity like a glove.
From its inception in October 1950 under the name Associate Investors Ltd., this fund has delivered a compound average annual return of about 9.8 per cent.
The impressive aspect of this number is that it's based on consistent excellence and not on the impact of a long-ago boom cycle that has covered over poor recent returns.
Go ahead, check this fund's returns relative to its peers at as of June 30 on GlobeinvestorGOLD.com. You'll find that it decisively outperformed in each and every time period, from one month to 20 years.
Blue-chip stocks are usually thought of as offering a degree of shelter in times of stock market volatility. If you use Co-operators Canadian Conservative Focused Equity as your model, then the same can be said of blue-chip funds.
Co-operators Canadian was solid as a rock during the past three bear market years. The compound average annual return for the three years to June 30 was 7.4 per cent, which is almost laughably better than the average Canadian equity fund's loss of 4.9 per cent and the S&P/TSX composite index's loss of 10.4 per cent.
Often, a stalwartly conservative equity fund will prosper in tough markets but fade when the stock markets surge.
Co-operators Canadian has itself shown a hint of this. In the crazy bull market year 1999, it made a rare appearance in the fourth quartile of Canadian equity funds (the lowest 25 per cent as ranked by returns).
The fund has been right in the thick of the recent market rally, however. Its gain for the three months to June 30 was 9.7 per cent, more than the average Canadian equity fund's 9.3 per cent.
One explanation for the fund's consistent returns is the consistency of its management. One of its managers, George Frazer, has been with the fund since inception, while another, Bill Tynkaluk, has been on the job since 1957. The pair have been grooming a successor, Patrick Magee, who has been around since 2000.
Another reason behind the fund's success is its focus on—what else—blue-chip stocks or, more specifically, dividend stocks. Every one of the Top 10 stocks in the fund has a dividend yield of roughly 3 per cent or more. Among the names are:
and two banks,
There are also a couple of corporate bonds among the top holdings, and an income trust, Fording Canadian Coal Trust.
The benefit of owning a collection of dividend-focused stocks can be seen not only through the returns of Co-operators Canadian, but also its pattern of volatility.
The fund has a three-year beta of 0.31, which is a fancy way of saying its volatility is a little less than one-third that of the S&P/TSX composite index. The average Canadian equity fund has a beta of 0.7.
Despite this fund's impressive record, not a lot of investors know about it. Its asset base as of mid-year was just $32.3-million or so, which by fund industry standards is a notch below tiny.
That said, it's widely available through brokers and fund dealers as part of a family of funds overseen by Co-operators, a Guelph, Ont.-based insurance company.
You won't find a lot of advertising hoopla about Co-operators Canadian Conservative Focused Equity. Instead, it makes its case by providing impressive returns year after year, just the way blue-chip investments are supposed to.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.