By Claire Sibonney

TORONTO (Reuters) - Investors seeking dividend and income-paying stocks will find more bargains in the United States than Canada, where sectors such as real estate investment trusts have become pricey, a team of leading Canadian fund managers said on Tuesday.

The managers of Manulife Asset Management's C$5.2 billion ($5.2 billion) Monthly High Income Fund have moved their portfolio from about a 12 percent weight in U.S. equities a year ago to 20 percent now.

The team, which uses a bottom-up stock-picking style, booked profits on some Canadian financial and defensive names in order to buy what they see as more attractively valued U.S. companies.

"When you look at our fund you will see that we will gravitate more towards the steady Eddies of the world ... so we've really ramped up our U.S. exposure because that's where we have been finding better opportunities," said Alan Wicks, lead manager of the fund, who oversees a total of C$9.5 billion in assets in this and other funds.

"Roughly 50 percent of the TSX is materials and energy and those are companies ... we typically penalize in our equity risk premium because they have very little control over their revenue or their cost."

After beating Wall Street through the previous decade, many managers think Canadian stocks look set to lag for a second straight year in 2012 as relentless overseas headwinds drag on the Toronto Stock Exchange's hefty resource sectors.

The Manulife fund - which holds about 60 percent equity and 40 percent fixed income and cash - had an average annual compound return of 13 percent over the last three years, according to the company's data at the end of February. In 2011, it returned 1.4 percent versus a more than 11 percent loss for the broader S&P/TSX composite index.

Fund tracker Lipper, a Thomson Reuters company, has awarded the fund its highest rating for total and consistent returns.

Some of the fund's top 10 holdings include Shopper's Drug Mart, Canadian Imperial Bank of Commerce, Rogers Communications , Pepsico Inc, Johnson & Johnson, Walmart Inc and Becton Dickinson. Nine out of the top 10 names have increased their dividends in the past year.

The managers see good value in many U.S. names even though the S&P 500 is up nearly 9 percent this year, while the TSX composite is down slightly, off around 0.2 percent.

"In the U.S. you have the opportunity to buy certain franchises ... which are fantastic companies that have been around for decades and decades," said portfolio manager Conrad Dabiet. "That to us is much more appetizing."

The fund has been trimming its exposure to Canadian financials, telecoms and utilities - and getting out of booming real estate investment trusts such as Riocan and others entirely.

"We just think they're pretty expensive," Wicks said. "In the past we have had significant weights in a lot of different REITS."

The fund is significantly underweight in commodity plays relative to the resource-heavy TSX, with no materials and only a couple of energy-related picks. They include pipeline company TransCanada Corp and natural gas producer Peyto Exploration and Development.

FINANCIALS DOMINATE CORPORATE BOND LAND

In the bond space, the fund is heavily weighted in investment grade corporate bonds, many of them issued by Canadian financial services companies.

"In Canada at least, it's the banks that have the most liquidity available for investors," said the fund's co-manager, Jonathan Popper, noting four of the fund's five top fixed-income names are financial.

The fund's No. 1 fixed-income holding is a Canadian dollar "maple bond" issued by General Electric. These types of securities give Canadian investors exposure to foreign issuers without taking on currency risk.

INTEREST RATES NEAR BOTTOM

The fund managers, who watch interest rates closely, believe borrowing costs are near a cyclical bottom. But they said economic problems in the United States, Europe and China will ensure that any increases are moderate.

Wicks noted that last week's disappointing U.S. jobs report was "a kind of a slap in the face, a kind of 'holy smokes, the world is not a perfect place still'."

As rates begin to inch higher, however, he does not expect too much pressure on the fund's returns, noting March was one of the its best months, despite a sharp spike in bond yields.

"Yield does not drive for us. We look for total returns, both capital and yield."

(Editing by Jeffrey Hodgson and Peter Galloway)