GGOF Guardian Group of Funds will cap its popular GGOF Monthly High Income Fund, and launch a new Fund, GGOF Monthly High Income Fund II. Both changes take effect October 31.
The Monthly High Income Fund (MoHi) is currently Canada’s largest open-ended high income fund, valued at $1.2 billion, more than twice the size of its largest competitor. GGOF says it is capping the fund before it becomes too large to permit full investment flexibility. The company feels the fund’s strong current sales momentum could hamper its flexibility in the future.
In order to manage risk for its unitholders, GGOF’s funds are not permitted to hold more than 10% of any individual security. Because of its size, MoHi has already reached or is close to hitting the ceiling on several securities held by the fund.
“Capping MoHi is part of our ongoing strategy to protect the interests of existing unitholders,” says John Boeckh, Senior Vice-President, Marketing, GGOF. “In fact, MoHi was originally created after GGOF capped its popular GGOF Monthly Dividend Fund (since re-opened) for similar reasons in October, 1996.”
GGOF Monthly High Income Fund, GGOF Monthly High Income Fund II and GGOF Monthly Dividend Fund are managed by John Priestman and Kevin Hall of Guardian Capital Inc. In order to provide the managers with the greatest degree of investment flexibility, GGOF will structure MoHi II slightly differently than its predecessor.
“Over the last eighteen months, an increasing number of business trust units have come to market,” said Gavin Graham, director of investments, GGOF, in a news release. “These trusts represent a variety of mature businesses, such as restaurants, food manufacturers, warehousing, cold storage and consumer staples. It is anticipated that these units will represent the single largest sector in MoHi II, with the remainder split among Real Estate Investment Trusts (REITs), Royalty Trust Units (RTUs) and power and pipeline trusts.”
MoHi II’s smaller size will give it additional flexibility in acquiring relevant positions in smaller capitalization securities. The fund, like its predecessor, will pay a regular 6¢ monthly distribution and have an initial offering price of $9. Given the new fund’s target composition, it is anticipated that 30% to 35% of MoHi II’s distributions will ultimately result in tax-deferred capital gains, making it suitable for registered and non-registered accounts alike.
Although MoHi is closing to new investors, existing unit holders who invest regularly through pre-authorized chequing accounts may continue to do so.
GGOF will offer mutual fund and F-share versions of the new MoHi II, with 1.85% and 0.75% management fees respectively. It will also pay a 1% annual service fee on assets purchased under the sales charge option and shortened deferred charge option, and 0.50% on assets purchased under the standard deferred charge option.