The following commentary is courtesy of Dynamic Mutual Funds. The opinions, market outlook, and asset allocation strategies are those used in the design of the mutual funds they manage that we utilize in client portfolios.
Oscar Belaiche, vice president and portfolio manager at Toronto-based GCIC Ltd., spent his early career managing a large portfolio of real estate properties. That experience has served him well in choosing income-generating equities for mutual funds.
“My background is in real estate. And when you own property, it’s all about getting a monthly rent cheque,” says Belaiche, recipient of the 2012 Morningstar Domestic Equity Fund Manager of the Year award. He and his team specialize in income-producing equities for mutual funds branded under the Dynamic name, sponsored by Bank of Nova Scotia.
“I create a monthly rent cheque for fund unitholders,” Belaiche says, “from the distributions and dividends paid by the fund’s holdings.”
Belaiche’s selection for the Morningstar award is based largely on the performance of two funds he has managed for more than 0 years: Dynamic Equity Income Fund, which had a 10-year average annual return of 11.2%; and Dynamic Small Business Fund, which had a 10-year return of 18%. Both funds’ returns are superior to the S&P/TSX composite index’s return of 9.8%.
Belaiche invests in high-quality, dividend-paying companies or distribution paying income trusts. He describes his process as “quality at a reasonable price” and seeks low-volatility firms that steadily increase their free cash flow (a.k.a. “owner’s earnings”) and lay out growing income to shareholders.
“Last year, the first of the baby boomers turned 65,” Belaiche says. “And, on average, there will be another halfmillion a year turning 65 for the next 20 years. They may not all retire at 65; but they are figuring out a way to replace wages and salaries by creating an income stream with their capital. I’ve been working in this area a long time, and the need is growing.”
He believes we are in a “lower for longer” interest rate environment, and investors are turning to securities that can give them a better yield than the benchmark 10-year U.S. treasury bond, which currently yields about 1.7%. The universe of companies that are increasing their dividends is increasing, he adds.
Prior to joining Dynamic Mutual Funds Ltd. in 1997, Belaiche spent several years working for a commercial and industrial real estate developer, then spent another seven years with Prudential Insurance Co. of America, where he was responsible for the leasing and property management of Prudential’s portfolio of 43 commercial buildings.
Belaiche joined the investment fund business by becoming part of the team that managed a couple of real estate funds sponsored by Dynamic. He later expanded his responsibilities to mutual funds investing in dividend-paying stocks and income trusts.
It is part of our due diligence process to closely monitor the asset managers who make the underlying investment selections within our clients’ portfolios. We always remain well informed of their opinions, forecasts, and investment philosophies.