Dividend Mutual Fund

7727 Views 11 Replies 6 Participants Last post by Doug, Jul 20, 2009

Cal

Discussion Starter · Jul 12, 2009

Ok so obviously I know what a mutual fund is. But I didn't know if Dividend mutual funds gave dividends or reinvested by purchasing more shares, like a regular dividend stock would (such as ENB)? And yes I know that the MF co will take its MER first. I just wanted to know a little more about them.

Second...can anyone inform me of any dividend ETF's that may be out there?

Not for a stock tip...just so I can check it out and view the holdings and such.

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mogul777

· #2 · Jul 12, 2009

Depends if it's setup to reinvest or not...

Dividend funds are by and large basic large cap equity funds, most could be managed by a fifth grader since you don't actually have to do much of anything other than buy the banks, typical couple of energy and utility stocks. Exciting stuff. Do not pay for "active" management whatever you do. Any half-brain with a little cash can assemble a handful of dividend paying stocks to make his own "fund". Same goes for ETFs though the trading cost of owning individual companies verses paying the fund fees plus a lower number of trades would be worth comparing here.

Type dividend ETF or just ETF into Google and do your own homework.

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humble_pie

· #3 · Jul 12, 2009

absolutely agree w mogul seven although i think it takes a hi school grad.

another sterling advantage of owning a handful, even if it's only a small handful, of dividend-paying stocks in outright ownership is that you get to control all the taxation consequences. By xmas each year an investor knows what his taxable income has been, can make last-minute adjustments if necessary. Whereas a fund keeps an investor in the dark, doesn't send tax slips until late winter/early spring of the following year.

one caveat, if i may. Federal dividend tax credits are scheduled to decrease over next few years. Most provincial tax credits have already decreased. Capital gains have become the investment income of choice.

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Henry

· #4 · Jul 12, 2009 (Edited)

Dividend Mutual Funds or ETF

You should look at the no load dividend fund or ETF.

Mutual Funds: PH&N Dividend Income D and RBC Canadian Dividend Series D

ETFs: iShares CDN Dividend Index Fund (XDV), iShares CDN Value
Index Fund (XCV), Claymore CDN Dividend & Income Achievers ETF (CDZ)

My favorite one is iShares CDN Value Index Fund (XCV). It has 90 holdings and is capitalization weighted index. XDV and CDZ use a special criteria to select the stocks and the weightings. XDV holds too few stocks: 30 to be concise and CDZ is weighted by annual dividend yield. CDZ's composition is overweighted on midcap and smallcap dividend stocks and that is good if that is your preference. The good thing about ETFs is that they do securities lending which decreases the effective MER of ETFs.

I would avoid the load funds, since their MER range from 1.58% to 2.70%. Load funds are designed to compensate the brokerage and the broker.

You should look the chart that I have attached. Due to uploading size limitation, I was unable to attach the full chart. I believe it is still useful to look at.

You should check out this link and see how to mimic various ETFs including XCV: http://www.ndir.com/cgi-bin/ETFsVsStocks.cgi

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mogul777

· #5 · Jul 12, 2009

Good post Henry, but a couple of points.

30 stocks is too few?? In what universe is it necessary for one person to own more than 30 stocks? That's rhetorical by the way.

Mutual funds also participate in the shady practice of securities lending. Don't be fooled into believing this is for your benefit and that the cost is lowered because of it. That is speculation at best...

Your chart is also suspect since BMO and CIBC are of course no load funds. You are also using the lower cost D-series funds for sister companies PH&N and RBC (bias?) that not everyone has the option to purchase. It's entirely possible that a no load fund will be more expensive than a load fund. So using that as a purchase decider is foolhardy... espcially since dicount brokerages don't even charge front end loads anymore. Trailer fees yes, but those are included in the MER.

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Cal

Discussion Starter · #6 · Jul 13, 2009

Personally I just have stocks, and do like to drip some of them. Obviously getting more shares.

But I didn't know if a dividend MF payed out the dividends in $ or in the form of more units. Or if the dividend stocks that the MF invested in simply purchased more units with in the MF. Not too familiar w these thats all.

And I will check into the ETFs. Thanks for the input.

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Henry

· #7 · Jul 13, 2009

mogul777: PH&N D series to my knowledge are available without transaction costs at three discount brokerages: RBC Direct Investing, BMO Investorline, and Scotia iTrade. You are right though: most people don't know PH&N D series is available them.

I think there is a major difference between .25% and 1.00% trailer fee. .25% is used to compensate the discount brokerage regarding to distribution. 1% is used to compensate the full service brokerage and the broker. Why should I be paying 1% or more annually when I should be paying .25%? That is why I feel comfortable calling the D series no load. CIBC, Scotia, and BMO should create a D series version of their funds. I have taken the CSC course and I know that by convention: mutual funds without a front load or back load is called no load. The question is the same: Why should I be paying 1% or more annually in trailer fee for no advice offered? I am just bringing transparency to the system, since most people are not aware of it.

Vanguard does securities lending the right way. BGI does securities lending, but gorge half of the profit. Further information:http://www.canadianbusiness.com/columnists/larry_macdonald/article.jsp?content=20090604_152031_5284 and http://online.wsj.com/article/SB124363555788367705.html#articleTabs=article

Like my original post, I like iShares CDN Value Index Fund (XCV) over PH&N Dividend Income D and RBC Canadian Dividend Series D. In this crazy market, the flexibility of the ETF is a blessing just in case you need to sell.

Regarding to 30 stocks too few, I am just saying that you can replicate the ETF within reasonable cost. Here are my true biases: I am deeply influenced by efficient market hypothesis and I accept that unsystematic risk is efficiently priced most of the time. (Note: Systematic risk is another story for me) I am also affected by the Three Factor Model (value stocks and small stocks are great at times) and that is why I am in favor of XCV. We have to agree to disagree.

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mogul777

· #8 · Jul 13, 2009

rookie888 said:
Personally I just have stocks, and do like to drip some of them. Obviously getting more shares.

But I didn't know if a dividend MF payed out the dividends in $ or in the form of more units. Or if the dividend stocks that the MF invested in simply purchased more units with in the MF. Not too familiar w these thats all.

And I will check into the ETFs. Thanks for the input.

They reinvest or payout based on what instructions you give them same as any stock with a DRIP option.

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mogul777

· #9 · Jul 13, 2009

Henry said:
mogul777: PH&N D series to my knowledge are available without transaction costs at three discount brokerages: RBC Direct Investing, BMO Investorline, and Scotia iTrade. You are right though: most people don't know PH&N D series is available them.

I think there is a major difference between .25% and 1.00% trailer fee. .25% is used to compensate the discount brokerage regarding to distribution. 1% is used to compensate the full service brokerage and the broker. Why should I be paying 1% or more annually when I should be paying .25%? That is why I feel comfortable calling the D series no load. CIBC, Scotia, and BMO should create a D series version of their funds. I have taken the CSC course and I know that by convention: mutual funds without a front load or back load is called no load. The question is the same: Why should I be paying 1% or more annually in trailer fee for no advice offered? I am just bringing transparency to the system, since most people are not aware of it.

Vanguard does securities lending the right way. BGI does securities lending, but gorge half of the profit. Further information:http://www.canadianbusiness.com/columnists/larry_macdonald/article.jsp?content=20090604_152031_5284 and http://online.wsj.com/article/SB124363555788367705.html#articleTabs=article

Like my original post, I like iShares CDN Value Index Fund (XCV) over PH&N Dividend Income D and RBC Canadian Dividend Series D. In this crazy market, the flexibility of the ETF is a blessing just in case you need to sell.

Regarding to 30 stocks too few, I am just saying that you can replicate the ETF within reasonable cost. Here are my true biases: I am deeply influenced by efficient market hypothesis and I accept that unsystematic risk is efficiently priced most of the time. (Note: Systematic risk is another story for me) I am also affected by the Three Factor Model (value stocks and small stocks are great at times) and that is why I am in favor of XCV. We have to agree to disagree.

You should be paying zero.

Technically trailer fees are not the same as load fees, that is where your confusion is coming in...

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bpither

· #10 · Jul 14, 2009 (Edited)

Since I left the mutual fund industry in the dust (a.k.a. fees and mediocre performance) I have done much better by investing in individual stocks online. Ask yourself this. Who does a better job of managing your money - you or the fund owners? According to a recent Globe and Mail article 96% of all Cdn funds never beat the index. What does that tell you?

I was a private client of PH&N for four years in Vancouver. In fairness they are one of the better fund managers - and certainly in the fixed income department they are tops which is one of the reasons why RBC Asset Management were champing at the bit to buy them out in Spring 2008. If I were to buy any fund again it would be the PH&N High Yield Fund which is probably the best in this category. I just don't think it's wise to buy a collection of borderline investment grade bonds on your own. Aside from this I'm doing slightly better by selecting individual stocks (Canadian pipelines, utilities, banks and insurance companies) As a private client I was given a balanced portfolio which meant the good with the bad - their overseas and US funds (during the past decade) are not the best. Surprisingly, and I'm still perplexed by this, I was never told about the Absolute Return Fund which is not mentioned on their website either. You need to have 150 grand to buy into it but that was no problem ... why they never told me is a mystery given their rhetoric about integrity, and "what's good for our clients" Do a search and see the returns since 2002 - even managed a 1.8% gain in 2008.

The flagship Dividend Income Fund is not a pure dividend fund. "Distributions" have a portion which are capital gains - regardless of how well the fund performs they are buying and selling all the time and if redemptions, as was the case in 2008, are high, and even if the fund loses money, you will have to pay tax on those gains (!) Gordon Pape wrote an article on that one and specifically mentioned PH&N.

So buy the ETF - you're better off because of the flexibility. Or, see which stocks make up the top ten in any well managed fund and buy those using an online brokerage.

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Henry

· #11 · Jul 15, 2009

bpither: Thanks for sharing your experience. I think PH&N Absolute Return is a hedge fund, but its performance is impressive. Volatility adjusted return based on the public data available is impressive. 1.25% MER is reasonable if no performance fee is charged on top.

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Doug

· #12 · Jul 20, 2009

Henry, you like XCV as do I. XCV has assets of $34 million, CDZ has $72 million in assets and XDV has $400 million. I'm confident that XDV is here to stay. Probably, CDZ will too. However, XCV may have a short lifespan. I would like to invest in XCV, but with that asset base, I'm reluctant.

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