Canoe EIT Income Fund is a Canadian closed-end investment trust. The investment objective of the Fund is to maximize monthly distributions relative to risk and maximize net asset value while maintaining and expanding a diversified portfolio. In other words, EIT has been created to take your money, manage it, and distribute juicy monthly dividends to help you manage your retirement budget.
What Canoe Income Fund looks like
The Canadian fund includes 54.5% (+8.5% vs last year) Canadian equity stocks, 39.4% (+2.4%) U.S. stocks, 0% (-10%!) cash and 6% (flat) international equity. There are no bonds or other types of fixed income securities. Despite having around 50% of its assets invested in Canadian firms, its sector breakdown is heavily concentrated into financials, energy, and materials (56.2%).
Source: EIT website
*The top 25 equity holdings make up 78.1% of the fund.
They have an impressive diversification of stocks from low yield to high yield with various safe stocks and other quite speculative securities. As you might correctly assume the fund has 30% (down from 35.8% last time we reviewed it in 2021) of its assets invested in energy and the basic materials sectors, and I am not a fan of this type of portfolio. However, it explains why it has been performing well in the past two years (more on that later).
Another interesting point is the amount of turnover in the fund when we compare their top holdings from July 2021. I have highlighted (in green) 8 positions out of 25 (32%) that are not in the top 25 this year.
*The top 25 equity holdings make up 77.4% of the fund in 2021.
But my opinion does not really matter if the fund helps you retire happily. Let’s look at what does really matter though and that is how the fund’s money has been managed over time and how much you profit (or not) from the management team led by Rob Taylor, CPA, CA, CFA (yes, he needs 2 business cards to include all his titles!).
Performance & Distributions
From their website, we can see that EIT has outperformed the TSX on a consistent basis (which was not the case with 2020 numbers). Their focus on the energy and basic materials sectors clearly paid off over the past 24 months.
However, I do not like that they only use the TSX as their benchmark and ignore the S&P 500. With close to 40% of their portfolio invested in the U.S. and 6% in international markets, it seems only fair to include U.S. and international components to their benchmark.
Just for fun, I ran the calculations using a portfolio with 54.5% XIU.TO, 39.4% SPY and 6.1% XEF.TO (for international equity) for the past 5 years and 3 years. Results include dividends and are as of 7/31/2022 to match their website.
The portfolio with 54.5% XIU.TO, 39.4% SPY and 6.1% XEF.TO shows a 5-year return 63.13% or 10.28% annualized return. This is much lower than the Canoe Income fund.
This is quite interesting as our conclusion in 2021 and 2020 was not the same. The first two times we analyzed the fund, it had underperformed the index portfolios we created. This time, it is quite the opposite. You can see that change occurred around mid-2021 where Canoe started to surge while indexes reached a plateau and eventually decreased in 2022.
The idea of having a high yield investment (EIT.UN.TO pays 10% yield at the time of writing) where distributions are paid monthly is quite interesting. If you reinvest the distribution, you could beat the market, which is quite impressive! Strangely enough, EIT.UN.TO returns are now quite like my personal portfolio.
The lesson here is that conclusions and returns can vary from one year to another. We will review Canoe again next year. The Canoe fund could be an interesting way to generate a high income from your investments. However, if you cash this distribution, make sure you realize two things:
#1 Your capital will not likely grow over time
#2 Your dividend will not likely grow over time
Canoe EIT income fund is not the worst investment in the world. In fact, it generated decent returns considering their dividend. While recent performance on the market is impressive, the fund is not perfect. First, do not avoid fluctuations when the market is shaky. If you looked at your portfolio value during corrections, Canoe did not save you from headaches.