Doug Warwick still likes the Canadian Banks
::: Michael Ryval ::: Morningstar Canada :::
::: Michael Ryval ::: Morningstar Canada :::
A student of market trends, Doug Warwick expects that investment returns in 2010 will be in line with historic averages. "If you look at 200 years of history, a good long-term equity return is CPI plus 3% or 4%," says Warwick, 52, lead manager of the $3.5-billion TD Dividend Growth Fund.
Indeed, 2008 was brutal as the fund lost 29.9%. Longer term, the fund has been in the first or second quartile and is a Morningstar Fund Analyst Pick.
"I never would have imagined that the mix of assets that we owned would go down that much. It was fear of financial collapse that did that," argues Warwick. "But the dividend income from our portfolios continued to creep up through all of this."
"I never would have imagined that the mix of assets that we owned would go down that much. It was fear of financial collapse that did that," argues Warwick. "But the dividend income from our portfolios continued to creep up through all of this."
A bottom-up stock picker, Warwick favoured financial services stocks going into the crisis. Last winter he used cash to add to existing holdings, such as Royal Bank of Canada, Bank of Nova Scotia, CIBC and Bank of Montreal. Financials account for about 56% of the fund. Significantly, while BMO and CIBC are widely regarded as turnaround situations, each accounts for about 8% of the fund.
"Because Canadian banks are so well capitalized, they were able to benefit from the credit crisis," says Warwick, noting that these institutions' capital levels remain strong. "A lot of players had to restrict their lending. The Canadian banks made a big effort to grow their loan books. That's one of the reasons why Canada did not suffer as much as other countries." Looking ahead, Warwick continues to favour the Canadian banks. "They are coming out of this stronger than when they went in. They will have more pricing power over the next two or three years than they had in many years."
Besides owning select energy stocks, such as Suncor, Warwick likes a number of income trusts because they are adapting to 2011 tax legislation and intend to keep their distributions unchanged. "In many cases, they are converting from income distribution to dividends, which creates a great opportunity in some of those income trust names," says Warwick.
6 comments:
I get so frustrated when I read someone, especially a professional, loses 30%... get real. Nevertheless, moving beyond that, the general premise is interesting. Each company will be able to assess it's own dividend payments in the future.
I would never consider purchasing a dividend growth fund. Instead I find it to be cheaper to maintain my own dividend growth fund and save of all the fees.
Good work on the blog!
Dividend Growth Investor
Actually, TD Dividend Growth Growth Fund (Series S) has an MER of 0.84% with a current yield of 7.8%.
@ Bernie That MER of 0.84% in not the total cost. You can only buy Series S if you are working with a financial advisor. The advisor will typically charge an account fee of at least 1% to manage your portfolio.
From the TD website:
S series - high distribution paying equivalent of corresponding F series for investors participating in fee based programs and who wish to receive a regular monthly cash flow from a Fund.
...
Does that 0.84% "MER" include trading costs? They can be quite substantial too.
Trading Costs are NOT part of the MER. Given that this is a large institutional investor and this portfolio manager is very low turnover, trading costs shouldn't amount to much % wise.
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