Fidelity Investments Canada Ltd. has launched the Fidelity Diversified Income & Growth Fund. The fund holds a diversified mix of income-producing asset classes that also offer the potential for capital growth.

According to Fidelitiy, the fund’s income will be generated through exposure to: Canadian dividend-paying equities (40%); Canadian fixed-income securities (32%, comprised of units of Fidelity Canadian Bond Fund); U.S. high yield securities (14%, comprised of units of Fidelity American High Yield Fund); and U.S. commercial mortgage-backed securities (14%).

Fidelity says modest tactical asset allocation shifts may be made at the discretion of lead portfolio manager Derek Young to enhance returns.

Working with Young to manage the fund are: Steve Binder, Canadian dividend-paying equities; Cecilia Mo, Canadian income trusts; Jeff Moore, Canadian fixed-income securities; Matthew Conti, U.S. high yield debt; and David Bagnani, U.S. commercial mortgage-backed securities.

Fidelity says the fund can be the core of a diversified income portfolio and offers a complement to individual income trusts or income trust funds. Both the Canadian equity and fixed-income portions are able to make use of income trusts.

“Fidelity Diversified Income & Growth Fund is the ideal choice for investors and advisors frustrated with trying to figure out which income producing sector they should be in,” says Wilfred Vos, vice president, product development.

“It also addresses one of the risks investors are continuing to carry unwittingly: lack of diversification. Though income trusts look attractive because of their high distributions, it is becoming increasingly clear to investors that they come with risks similar to equities,” he says.

Vos says the fund can help investors reduce some of the risk in their portfolios through diversification among a selection of asset classes with low correlations. He adds that the fund offers greater downside protection, too.

Investors in the fund will receive a monthly distribution. Monthly distributions for the Series A units are estimated to be 1.8¢ per unit, with an initial net asset value of $10.

Fidelity says Investors seeking additional cash flow may invest in the Series T option on the fund with monthly distributions estimated to be 10¢ per unit, with an initial NAV of $15.

Fidelity notes that, unlike other similar funds with embedded return of capital, the distribution on the Series A version of the fund consists entirely of dividend and interest income from the investments, and will not erode original capital.

For Series T units, the distribution is comprised of both income and return of capital.