Canoe Income Fund (EIT.UN.TO) is a Canadian closed-end investment trust. The objectives of the Fund are to: 1) maximize monthly distributions relative to risk and 2) maximize net asset value while maintaining and expanding a diversified portfolio. In other words, EIT was created to take your money, manage it, and distribute juicy monthly dividends to help you manage your retirement budget.
It is closed-end, meaning that a fixed number of shares are traded on the market. Unlike open-end funds, which can issue and redeem shares based on investor demand, closed-end funds raise capital only once through an initial public offering (IPO) and then the shares trade among investors.
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What Canoe Income Fund looks like
As of March 31, 2004, the fund includes 50.9% U.S. stocks, 43.5% Canadian equity stocks, 5.5% International stocks, 0.1% fixed income investments (up from zero last year), and 0% cash, same as last year. Despite having nearly 50% of its assets invested in U.S. firms, its sector breakdown is heavily concentrated into financials, industrials, and energy (59.53%).
Source: EIT website
Top-25 Holdings
Below are the top 25 holdings in the fund as of March 31, 2024. The holdings shown in green are new in the top 25 when compared to 2023.
*The top 25 equity holdings make up 73.02% 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. I’m not a fan of portfolios heavily focused of the energy and basic materials sector. I must admit that holdings in these sectors helped Canoe Income Fund perform well in 2021-2022, but I am pleased that it has reduced its exposure to these sectors since, to a total of 23.51% compared 29% in August 2023
Another interesting point is the amount of turnover in the fund when we compare their top 25 holdings year-over-year. The fund consistently changes about 32% of its top 25 holdings every year. Below are the 8 holdings that were in the top 25 in August 2023 but aren’t anymore as of March 31st, 2024.
Such high turnover means more trades than a low turnover. This means more capital gains tax paid by the fund, which affects its overall returns.
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 two business cards to include all his titles!).
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Performance & Distributions
From their website, we see that EIT has outperformed the TSX consistently.
However, I do not like that they only use the TSX as their benchmark and ignore the S&P 500. With 50% of their portfolio invested in the U.S. and nearly 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 10 years. Results include dividends.
The portfolio with the mix of XIU.TO, SPY, and XEF.TO shows a 10-year total return of 158% or 9.94% annualized return. This is much lower than the Canoe Income fund 10-year total return of 221.8% or 12.4% annualized return.
The first two times we analyzed the fund in 2021 and 2022, it had underperformed the index portfolios we created. It’s been the opposite starting in 2022, due to Canoe’s wise decision to surf the energy boom of 2021-22.
Canoe Income Fund currently pays a 8.75% yield. The idea of having a high yield investment where distributions are paid monthly is quite interesting. If you reinvest the distribution, you can 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 is not likely to grow over time. Below, we see that over ten years, total capital appreciation is 10.22%, and that includes Canoe’s good plays in oil and energy in 2020-22!
#2 Your dividend is not likely to grow over time. It’s same as it was ten year ago.
Final Thoughts
Canoe income fund (EIT.UN.TO) is not the worst investment in the world. In fact, it generated decent returns considering their dividend. While its performance on the market for the last three to four years is impressive, the fund is not perfect. First, it does not avoid fluctuations when the market is shaky. If you looked at your portfolio value during corrections, Canoe did not save you from headaches.
