One of my New Year's resolutions was to clean out my Q&A box. Here are some of the most interesting questions I came across in the process.
RESP investing
Q – Where would you think would be a good place to invest $30,000 in RESP money for a seven and five year old? I have read that a low-cost global fund is a good idea. Can you provide your input? – Terry B.
A – A global or international fund would certainly be one component of an RESP portfolio for two youngsters but not the only one. Never put all your investing eggs in one basket. A well-diversified portfolio for children up to 10 years of age might look like this:
High interest savings account – 5 per cent
Canadian equity mutual fund/ETF – 30 per cent
U.S. equity mutual fund/ETF – 30 per cent
International equity mutual fund/ETF – 10 per cent
Universe bond mutual fund/ETF – 20 per cent
As the children grow older, the equity weighting should be reduced to lessen the risk of stock losses just before the time comes to begin college. – G.P.
Corporate class funds
Q - My sister-in-law is being pitched buying Dynamic Corporate Class Funds, I believe as a tax-deferred "evasion" tactic. I can't find anything that explains anything about the fund performance. I can see the types of funds on Dynamic's website and the fees and expenses of each of the funds, and the general purpose of the funds but nothing about performance. Can you point me in the right direction to get some solid information on these, which appear to be wrap funds? Or do you have any opinion about these you can write about? – Michael B.
A – Corporate class (CC) funds are pretty much the same as the ordinary mutual funds with the same name, with two main differences. First, CC funds operate under an umbrella corporation (hence the name corporate). Each fund is a separate pool of money within the corporation and assets may be moved from one to another without triggering a taxable event (tax is only applicable when the units are sold outright). This makes corporate class funds useful for people who do a lot of switching among various asset categories and don't want to trigger a capital gain (or loss) each time. If your sister-in-law doesn't fit this description, then I can't see much reason for her to bother with CC funds. Certainly, they do not belong in any type of registered plan, where there are no tax consequences from any switches.
The second difference is that CC funds usually carry a higher management expense ratio (MER) than regular funds, although the difference may be small. For example, the MER of the Dynamic American Value Fund Series A is 2.46 per cent and it was showing a three-year average annual compound rate of return of 18.9 per cent as of the end of November. The comparable Dynamic American Value Corporate Class has an MER of 2.49 per cent and a three-year average annual return of 18.68 per cent.
You'll find the same pattern with Dynamic Global Discovery. The regular fund units have an MER of 2.73 per cent and a three-year average annual return of 18.72 per cent. The CC units carry a 2.76 per cent MER and show a three-year return of 18.29 per cent.
The difference may seem small but there is no point in paying extra money if you don't need the benefit being offered. Only your sister-in-law can decide if the cost is worth it. – G.P.
How good are my funds?
Q - I am need of some advice on some mutual funds that I have purchased through a broker/financial adviser. They are as follows.
1) CI Cambridge Canadian Equity Corporate Class A. 5 per cent front load, MER 2.45 per cent.
2) CI Cambridge Canadian Dividend Fund Class A. 5 per cent front load, MER 2.41 per cent.
3) CI Cambridge Asset Allocation Corporate Class A. 5 per cent front load. MER 2.44 per cent.
Are these good value mutual funds (fees and growth) for a medium risk investor who invests $4,500 a month? – Garry L.
A – For starters, I can say with certainty that this adviser will be your best buddy. He should be, because you're paying way too much for these funds. The 5-per-cent front-end load is excessive by today's standards. Many advisers will sell you the A-class funds on a front-end load basis at zero commission, just to get your business on their books and collect the trailer fees. Tell the adviser that's the deal you want going forward. If he balks, go elsewhere. Any broker or dealer can sell you these funds. Alternatively, set up a fee-based account. That will save you the sales commission and allow you to buy F-class funds with lower MERs.
The funds themselves are good quality, with strong performance records. But given the amount of money you are investing you may wish to diversify more. – G.P.
Diversiflex Plus
Q - Do you know anything about a product called Diverisflex Plus, offered by HollisWealth? If you do, what are your thoughts on it, i.e. is it a good investment in your view? – Don R.
A – I'm not familiar with it so I checked out the product on the HollisWealth website but there isn't much information there – nothing about costs or performance, which are the two key metrics in your decision process. It appears the portfolios are tailored to each individual and returns are not made public so I am not able to compare results to other funds or portfolios of the same type.
If you want to pursue this, I suggest you talk to a company representative. Ask for a complete run-down of all fees and for pro forma results for the specific portfolio they recommend for you. Compare those returns to those of other funds of the same type and then decide if this is an investment you wish to make. - G.P.
If you have a money question for me, send it to gpape@rogers.com and write Globe question in the subject line. I can't promise a personal response but I'll answer the questions of greatest interest here periodically.
Gordon Pape