Market volatility provides opportunity for high income funds

Amidst all of the “Bad” news we hear in the papers and on television, there is some good news for today’s investor.

For the first time since 1994, we have found ourselves in the midst of a BIG CLEARANCE SALE. Many mutual funds are selling at values 20%, 30% and in some cases over 50% below their prices from less than 5 months ago. Does that mean we should rush out to buy up these deals? We think this gives investors a tremendous buying opportunity, however, we need to remember that a product on sale is of no value if we do not actually need that product.

If we found a great sale on walking shoes, would we buy those shoes even if they were 2 sizes too big? Would right-hand golfers buy a new set of left-hand clubs even if they were on sale for 75% off? In the mutual fund industry, although most mutual funds are providing good value, you should not buy a mutual fund unless it suits your personality and risk tolerance. Even though Asian and emerging market funds seem to be great bargains today, conservative investors should be cautious in over-exposing themselves to this highly volatile area.

The good news we see today is in the area of income products. With the recent market corrections, many of these investments have adjusted their prices to levels that provide attractive flows of income for non-RRSP money. One of the advantages of these products is that the income is fixed in the form of distributions so (unlike a Systematic Withdrawal Plan) we don’t have to sell more units when prices are down. Furthermore, this simplifies the tax aspects so that tax preparers do not have to undertake the calculations of the Adjusted Cost Base (ACB) on a regular basis.

Fund Name Frequency of income Unit Value (as of Aug 31) Distribution Effective Yield
Industrial Income (A) Quarterly 7.29 0.25 13.72%
Clarington Income Monthly 9.11 0.08 10.54%
Guardian Monthly High Income Monthly 6.88 0.06 10.47%
C.I. Global High Yield Monthly 8.92 0.07 9.42%
Dynamic Global Income & Growth Monthly 4.21 0.033 9.41%
C.I. Income Monthly 10.29 0.08 9.33%
BPI Income Monthly 9.14 0.06 7.88%
Global Strategy Income Plus Quarterly 21.17 0.35 6.61%
Industrial Income (B) Quarterly 7.57 0.10 5.28%
C.I. Dividend Monthly 9.55 0.04 5.03%
Dynamic Dividend Monthly 6.27 0.022 4.21%

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