# RBC Monthly Income Fund?



## jargey3000 (Jan 25, 2011)

I think this has been a "popular' fund over the years. Given it's recent performance (info. as of Aug 31/15): YTD: -1.8% & 1-Year: -2.6%, would this be a good time to put some money into it? Comments?


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## Belguy (May 24, 2010)

Not answering your question but I have held this fund in an open account for several years now with no complaints up until the last year. I too will be interested in any responses.


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## jargey3000 (Jan 25, 2011)

(I've held it on & off ... just thinking about dipping a toe in again)


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## agent99 (Sep 11, 2013)

I used to hold that fund, but I seem to recall that it could no longer be held in registered accounts.

I own TD Monthly Income (TDB622). The only MF I own. I use it in registered accounts to mop up dribs and drabs of income until such time I have enough to invest elsewhere. However, I have found that over years it has done as well as almost anything we own. It is a balanced fund, so you get fixed income along with equity so in a way, it mirrors our FI/Equity allocation. 

The other fund I sometimes look at, but have never bought, is the Mawer Balanced fund (MAW104). Has some global exposure. They also have a new one called the Global Balanced fund (MAW130). MAW104 is rated 5-star by Morningstar vs 4-star for TDB622 and 3-star for RBF448 (RBC MI)


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## james4beach (Nov 15, 2012)

It's just another balanced fund, basically. What is the advantage of buying one of these 'monthly income' funds rather than just 50/50 canadian index and bonds, such as the XIU & XBB combo?

The only reason I can see is the return of capital, which is automatically "selling off" assets internally. If you did XIU & XBB, you'd have to sell shares manually to create the same cashflow.

However if you don't need the cashflow and regular payout, then I don't see any advantage versus XIU & XBB.

Even for the advantage of the regular cashflow, is that really worth the approx 1.1% extra annual fees versus using index ETFs?


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## fatcat (Nov 11, 2009)

in a time of slow growth and low interest rates that might continue for another decade 1.2% is too much
the costs of investing become crucial in a time like the present
it's too pricey imo


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## james4beach (Nov 15, 2012)

Yeah, it's just too big a fee. The balanced fund can be replicated using a low fee stock and bond ETF, perhaps XIC and VSB. Or alternatively, XIC + GIC ladder.

That's fundamentally the same exposure as RBC Monthly Income or any other of these balanced funds.

Imagine someone with 100k using one of those Monthly Income funds and unnecessarily throwing away over $1000 every year in fees!


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## agent99 (Sep 11, 2013)

james4beach said:


> It's just another balanced fund, basically. What is the advantage of buying one of these 'monthly income' funds rather than just 50/50 canadian index and bonds, such as the XIU & XBB combo?


The funds don't hold the same securities as XIU/XBB and the FI/Equity ratio is not necessarily 50/50. They are *managed* funds with different portfolios and possibly higher actual yield. If you wish to compare 50/50 XIU/XBB (or any other funds/gics) vs the three balanced funds mentioned, it would be best to use actual numbers. I did a quick check - see below. 

ROC? These bank monthly income funds don't usually pay out ROC, although it can happen if the distribution they set each January ends up being too high. 2014 was the first time that happened for TDB622. 

In the end Total Return is what we should look at - these MI funds have performed quite well after the fees are paid. So don't get too hung up on the fees. 

For example (after fee TOTAL Returns)

10 yrs 
RBF448: 5.2%
TDB622: 5.8%
MAW104: 7.9%
XIU/XBB: 5.3%

15yrs
RBF448: 7.3%
TDB622: 8.2%
MAW104: 7.7%
XIU/XBB: 4.1%


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## jargey3000 (Jan 25, 2011)

interesting numbers 99. Thanks. I'm sure someone will pick them apart though.:biggrin:


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## AltaRed (Jun 8, 2009)

As Agent said already, not directly comparable. Active mutual funds vary their equity/FI allocation and their stock picks, including ex-Canada picks in many cases. But an interesting comparison none the less.


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## james4beach (Nov 15, 2012)

Not directly comparable (I agree) but are they that far off? I wonder how much the allocation of those funds deviates from 50/50

I'm impressed that those monthly income funds are showing higher performance in the 15 year comparison. It's probably worthwhile delving into what exactly they are doing that has produced that higher performance. Maybe it's simply higher fixed income exposure?


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## OhGreatGuru (May 24, 2009)

RBC Monthly Income stays pretty close to 50/50.

TD Monthly income is tilted towards more equity: closer to 40/60. It's long-term returns have been a little better than RBC's, but can be accounted for by the different asset allocation. It's MER is higher.

But both are good Canadian Neutral Balanced funds for a conservative investor who doesn't want to actively manage a portfolio.

RBC Monthly Income is no longer available for registered accounts. But you can emulate its performance pretty well with a 50/50 split of RBC Bond Index and RBC Dividend Fund. 

What irks me about RBC Monthly Income, is that no matter how big your account is, RBC retail branches will only offer the Series A at MER 1.20 (which is actually pretty low for a managed fund). If you want the Series D with an MER of 0.88, you have to go to RBC Direct Investing or some other brokerage source. (And its subsidiary PH&N will not sell it to you either.)


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## james4beach (Nov 15, 2012)

Aha, so maybe the key difference in the asset allocation is that these are heavier in banks and financials (as RBC Dividend Fund is).

That would certainly explain the performance boost, as banks have done unusually well in Canada


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## humble_pie (Jun 7, 2009)

Q to gurus:

i'm being lazy, i haven't laid eyes on the prospectuses, i know i know, this is despicable ...

but may i ask if anyone has noticed which of these funds - if any - might be selling options?

provisions to allow the same will be spelled out in the prospectuses. I've noticed that many funds do *not* show option positions in their financial statements, even though these exist if only intermittently.

if anyone has noticed it would be nice to hear. Thankx.


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## james4beach (Nov 15, 2012)

Hi humble, good question. I don't know about these particular funds.

Financial statements capture a snapshot, so who knows what happens in between those balance sheets. They may have options or forex positions on Nov 1, but close them before the statements are produced in December. You'd never know!


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## Belguy (May 24, 2010)

Is it worth switching from the RBC Monthly Income Fund to the Mawer Balanced Fund (MAW 104)? Is the latter available through CIBC Investors Edge discount brokerage?


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## Eder (Feb 16, 2011)

You can buy all open Mawer funds thru Investors Edge


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## humble_pie (Jun 7, 2009)

james4beach said:


> Hi humble, good question. I don't know about these particular funds.
> 
> Financial statements capture a snapshot, so who knows what happens in between those balance sheets. They may have options or forex positions on Nov 1, but close them before the statements are produced in December. You'd never know!



one sort of knows by reading the prospectus. If it says the fund can invest in options, or short positions, or other derivatives, then i usually conclude that the same are part & parcel of a fund's operation, even though the financial statements don't show derivative positions.

james a modest proposal. A lot of these income funds are tarting up their returns with derivative trading, etc. Somewhere in cmf, higgledy piggledy, are previous threads & posts analyzing which income funds are doing what. The problem is that the informative posts are scattered at random, the archives are difficult to search, so some of the useful material has probably been lost.

i'm wondering if we could work gradually towards a classification system, even if rudimentary. For example, there's one bank income fund that does a lot of derivatives, but i don't remember which. Then we had posts identifying that another bank income fund did *not* appear to do derivatives, not surprisingly it had a lower return.

i'm not suggesting we should work this up formally, i'm only wondering if we could work towards some collaborative info storage system. Plus i'm asking you because you're one of the brave but small brigade on here that dares to read prospectuses.


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## agent99 (Sep 11, 2013)

Belguy said:


> Is it worth switching from the RBC Monthly Income Fund to the Mawer Balanced Fund (MAW 104)? Is the latter available through CIBC Investors Edge discount brokerage?


Most brokerages would have it available. There is a $5k minimum, I believe. It is a different type of fund. Does not distribute monthly income and distribution yield is small (~1%). But could be ideal for those in accumulation stage - long term growth. I don't own it.


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## james4beach (Nov 15, 2012)

humble_pie said:


> i'm not suggesting we should work this up formally, i'm only wondering if we could work towards some collaborative info storage system. Plus i'm asking you because you're one of the brave but small brigade on here that dares to read prospectuses.


Humble, I'm interested in this idea. A very similar thought crossed my mind some time ago (about identifying which ETFs are pure and which use derivatives and anything other than stocks/bonds).

It would be daunting to do alone. You may be right about the collaborative approach. Do you think it might work to put our results on a form of 'wiki' that can be edited by several people?

And you're right. If the prospectus says it may happen, I also assume it does. Maybe the solution to this is a simple *shared google spreadsheet*, with multiple columns for the various sorts of permitted exposure. Yes I think this would be useful. Thoughts? e.g.

XIU stocks
BLAH stocks bonds forex/swaps options futures


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## Belguy (May 24, 2010)

And then there is something called the Mawer Tax Effective Balanced Fund. Is this potentially a better choice, than say either the straight Mawer Balanced Fund or the RBC Monthly Income Fund, to buy and hold in a non registered account?


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## agent99 (Sep 11, 2013)

Belguy said:


> And then there is something called the Mawer Tax Effective Balanced Fund. Is this potentially a better choice, than say either the straight Mawer Balanced Fund or the RBC Monthly Income Fund, to buy and hold in a non registered account?


It is probably not much different than the Balanced fund, except for the tax efficiency. It does seem to be well thought of for taxable accounts - IF you don't need and income stream. I did a quick scan and could not find an explanation as to how they achieve the tax efficiency. Perhaps they have a way of converting capital gains into ROC? That way CG tax would be deferred until the fund is sold. Otherwise CGs even if re-invested would attract annual tax.


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## zylon (Oct 27, 2010)

*off topic - deal with it*

7 minute discussion of _*Mawer Tax Effective Balanced Fund*_
with manager Craig Senyk. (March 2015)

http://www.bnn.ca/News/2015/3/18/Fund-Tracker-Keeping-your-returns-out-of-the-tax-mans-pockets.aspx


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## dubmac (Jan 9, 2011)

I hold Mawer Tax-effective Balanced (MAW105) & have been very happy with it Belguy. I'll buy more going fwd.


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## My Own Advisor (Sep 24, 2012)

james4beach said:


> It's just another balanced fund, basically. What is the advantage of buying one of these 'monthly income' funds rather than just 50/50 canadian index and bonds, such as the XIU & XBB combo?
> 
> The only reason I can see is the return of capital, which is automatically "selling off" assets internally. If you did XIU & XBB, you'd have to sell shares manually to create the same cashflow.
> 
> ...


I feel the same James. I wrote as much when a reader asked for my perspective as well:
http://www.myownadvisor.ca/alternatives-pricy-monthly-income-funds/

Besides, XIU is very tax efficient in a non-registered account.


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## humble_pie (Jun 7, 2009)

agent99 said:


> I did a quick scan and could not find an explanation as to how they [mawer tax effective balanced fund] achieve the tax efficiency. Perhaps they have a way of converting capital gains into ROC? That way CG tax would be deferred until the fund is sold. Otherwise CGs even if re-invested would attract annual tax.





the tax strategy that Mawer manager Craig Senyk is describing in the BNN video referenced upthread is, unfortunately, not discussed in the text portions of their website. It was discussed in a video on the tax effective balanced fund that's on the mawer website. The fund company has updated the video since i viewed it a year ago, so i don't know if the present version continues to explain the tax avoidance strategy.

nevertheless it's a strategy that's familiar to many cmffers. First of all, it's buy and hold. Holding means no capital gains, at least not this year.

but of course there are always *some* capital gains. So the next part of the tax strategy is how to offset or neutralize these.

suppose investor would have a capital loss from selling company A but does not want what A represents to permanently disappear from the portfolio. Investor therefore identifies a closely correlated company in the same sector. Call that company B.

taxpayer sells company A to crystallize the loss & simultaneously buys either company B's shares or else its call options. Myself, i greatly prefer the options in this situation.

the reason for company B is the 30-day wash rule that applies following a declared loss. There is a risk that, during the 30 days, the share price of dumped company A will rise. But in the above scenario, investor has sidestepped into a proxy for company A by buying company B or its options. If company A goes up, so will company B, goes the thinking.

it's not an exact science but it's pretty good. The reason i prefer call options in company B rather than actual shares is that the options are so much cheaper.

at Mawer, this tax-effective strategy means that the principal fund income is dividends & interest. From these streams, mawer management takes its fees. 

without looking at the financial statements, this is suggesting to me that distributions from this balanced fund must be on the low side. If it's yielding more than 2-2.5% on a current basis to investors, i'd be surprised.

part of this fund's strong performance since 08/09 must be due to the bull market in general. I'm happy to believe that mawer's performance has outstripped competitors in the same niche over the past 5-6 years, but i don't see such a similar rosy future in store for it - or for its competitors - at the present moment.

no rosy future, because there's no interest income anywhere. Not rosy because markets are flatlining or falling. Not rosy because european & emerging markets have significant problems. 

it's possible an investor could do slightly better with a mix of laddered GICs (investor would have to hunt for the best deals) plus XIU or its vanguard equivalent, plus an allocation of SPY or XSP or QQQ.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> I feel the same James. I wrote as much when a reader asked for my perspective as well:
> http://www.myownadvisor.ca/alternatives-pricy-monthly-income-funds/
> 
> Besides, XIU is very tax efficient in a non-registered account.


Nice article, thanks! I'm going to send this to my parents.

They're at a stage now where they have a large portfolio of very high MER mutual funds and are planning to live off it. Incredible how much fee waste there is. I already convinced them to put some into XIU and XIC, but I need to convince them to unbundle all of those high MERs (we're talking 1.5% to 2.5%) and distill it down to the basics using ETFs, or maybe e-series index funds.


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## My Own Advisor (Sep 24, 2012)

As you know, simple is always better! Good on you to help your parents.


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## GreatLaker (Mar 23, 2014)

humble_pie said:


> without looking at the financial statements, this is suggesting to me that distributions from this balanced fund must be on the low side. If it's yielding more than 2-2.5% on a current basis to investors, i'd be surprised.


I own Mawer Tax-effective Balanced. Its annual distribution is about 1.4%

It owns securities directly, compared to the regular (non-tax effective) version of the fund which holds other Mawer funds. It seems to me that holding securities directly would enable the tax loss harvesting technique that H_P describes.

Justin Bender published a blog post with regression analysis that says this fund's out-performance is due to its value tilt, not due to any superior management techniques:
Active Funds Exposed

"Once the returns are put through a 3-factor analysis, most of the funds’ alpha disappears and even turns negative. Even though this analysis may seem somewhat sophisticated, it serves no useful purpose in determining which funds or risk factors will outperform in the future. It does suggest that if you are looking to add a value tilt to your portfolio (in order to increase your expected returns), there are cheaper ways to do this using low-cost ETFs, rather than paying for traditional active management."​
Nonetheless, I have no plans to sell my holding.


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## Lena100 (Mar 16, 2014)

What are the tax consequences of buying MAW108 - U.S Equity Fund in a non-registered account? Thanks


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## james4beach (Nov 15, 2012)

I've got to be fair here. RBC Monthly Income Fund looks like a good fund.

Here's updated 10 year annualized performance to January 31, 2016
50/50 XIU & XBB: 4.29%
RBC Monthly Income Fund: 4.2%

And 5 year performance
50/50 XIU & XBB: 3.42%
RBC Monthly Income Fund: 4.1%

Assuming this is after-MER performance, that seems really good. If someone owns RBC Monthly Income Fund, it seems they're doing very well versus the benchmarks.


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## james4beach (Nov 15, 2012)

An update after another year. I took a fresh look at RBC Monthly Income and I am still impressed. I really think it might be one of the best "one size fits all" mutual funds in Canada.

Can this be held in a (non-RBC) discount brokerage RRSP? TFSA?


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## mordko (Jan 23, 2016)

Your benchmark isn't right. They are following a very specific strategy which did well over the last 10 years. A better benchmark would have 40% ZDV, 10% VYM and 50% VBB.

Of course, focusing on the slice of the market that played well over the last 10 years isn't going to help you going forward. The fund is actually quite a high risk, it has a huge allocation to Canadian banks and is quite concentrated in top 10 holdings.


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## Beaver101 (Nov 14, 2011)

james4beach said:


> ...
> Can this be held in a (non-RBC) discount brokerage RRSP? TFSA?


 ... yes to held at discount brokerage, and no for RRSP and TFSA - only non-register acc'ts.


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## mordko (Jan 23, 2016)

Beaver101 said:


> ... yes to held at discount brokerage, and no for RRSP and TFSA - only non-register acc'ts.


What is this based on? Why not eligible? The Globe seems to disagree.


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## agent99 (Sep 11, 2013)

Beaver101 said:


> ... yes to held at discount brokerage, and no for RRSP and TFSA - only non-register acc'ts.


I once owned this. From what I recall, this is correct for new accounts. But existing holders in registered accounts could continue to own.


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## Beaver101 (Nov 14, 2011)

^ Correct and to answer mordko's question - from copying from RBC GAM website:



> Fund Details
> 
> Series: A
> Fund Code: RBF448
> ...


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## GreatLaker (Mar 23, 2014)

agent99 said:


> I once owned this. From what I recall, this is correct for new accounts. But existing holders in registered accounts could continue to own.


Yes. The fund web page says:


> Notes: Units of this fund are no longer available for purchase in registered plans or TFSAs except through a pre-authorized investment plan established prior to December 9, 2005.


No obvious reason why from looking at the fund holdings.

_Edit: pretty much the same as The Beav just posted._


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## AltaRed (Jun 8, 2009)

james4beach said:


> I've got to be fair here. RBC Monthly Income Fund looks like a good fund.
> 
> Here's updated 10 year annualized performance to January 31, 2016
> 50/50 XIU & XBB: 4.29%
> ...


James, RBC lists 5 year return (to end of Jan 2017) RBC Monthly Income Fund (Series D) as 5.8% return. Mind you, you have be with RBC DI to hold Series D. Otherwise, it will be Series A elsewhere - 5 year performance of 5.5% to end of Jan 2017.


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## james4beach (Nov 15, 2012)

I've got to be careful about which series I'm looking at performance for ... thanks for that correction.

mordko - interesting points. I'll have to think more about that. But at first glance, it's no more heavily concentrated in financials than the TSX Index is.


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## twa2w (Mar 5, 2016)

GreatLaker said:


> Yes. The fund web page says:
> 
> 
> No obvious reason why from looking at the fund holdings.
> ...


This fund was designed to provide monthly income as the name implies. The managers tried, where possible, to make that tax advantaged.
Performance was good the first few years so people started adding it to registered accounts. the managers were concerned thst the fund would get too big( yeah hard to believe) to be able to effectively acheive its mandate of monthly income. They felt there were better funds in their lineup for reinvesting distributions in tax advantaged vehicles like rsps and RIFs. Hence the restriction to non registered accounts.
BTW RBC employees were likely the most responsible for putting clients into MIF within registered plans and there was backlash from employees at the time.


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## james4beach (Nov 15, 2012)

AltaRed said:


> James, RBC lists 5 year return (to end of Jan 2017) RBC Monthly Income Fund (Series D) as 5.8% return. Mind you, you have be with RBC DI to hold Series D. Otherwise, it will be Series A elsewhere


The Series A performance looks fine to me,
http://quote.morningstar.ca/QuickTa...rf.aspx?t=F0CAN05M90&region=CAN&culture=en-CA

10 years: 4.88%
15 years: 6.71%

That's higher than a 60/40 XIU and XBB which gave:
10 years: 4.69%
15 years: 6.56%

Combine that with the very mild 11% drop in 2008, and I think RBC Monthly Income hits a pretty sweet spot. It's too bad they don't offer this in registered accounts, but this may still be a very good "one size fits all" option for a retiree who is doing regular withdrawals out of non-registered. Like the Mawer Balanced Fund.


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## OhGreatGuru (May 24, 2009)

In a registered account you can emulate the performance of RBC Monthly Income with a 50/50 split between RBC Dividend and RBC CDN Bond Index Fund.


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## james4beach (Nov 15, 2012)

OhGreatGuru said:


> In a registered account you can emulate the performance of RBC Monthly Income with a 50/50 split between RBC Dividend and RBC CDN Bond Index Fund.


Ah, that's interesting. Does it achieve similar performance? One of the impressive things about RBC Monthly Income is that it did better than XIU & XBB


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## AltaRed (Jun 8, 2009)

RBC Monthly Income fund is going to vary its allocation depending on the best guess of the money managers. If there is any alpha in that decision and it is done correctly more often than not, then it could beat a fixed equity/bond allocation.


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## james4beach (Nov 15, 2012)

I suspect the managers are making good active allocation decisions. Just look at 2008 ... the fund declined 11% that year.

Other balanced funds declined much more. CIBC's fell 15% and TD's fell 23%. A static 60/40 of XIU & XBB fell 16%. MAW104 fell 16% too.

For me, the great handling of 2008 plus fine performance before & after is the proof that RBC Monthly Income managers are good money managers. This is rare.


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## AltaRed (Jun 8, 2009)

Maybe. It could also just be that their hunches were good for that time period. I wouldn't necessarily call them good money managers unless there was a 10-15-20 year track record of outperformance. But if the same folks are making decisions today that made them the last 10 years, I would give them the edge over some others. As the saying goes... past performance does not guarantee future performance.


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