It's RRSP season, and that means the annual mutual fund treasure hunt is under way for investors.
There are roughly 11,300 total funds and fund variations to sift through this year, so you'd better get busy. Or, get yourself some help.
That's where we come in, with our list of 12 good mutual funds and exchange-traded funds for registered retirement savings plans and tax-free savings accounts. We'll walk through the list here and you can find out more about each fund by clicking on the link for each or by exploring Globe Investor's new mutual fund and ETF websites. They are ideal places to begin your own fund research.
Some key points about the list of 12 good funds: Mutual funds were considered only if they have a track record of at least 10 years. ETFs, which have generally been around less time, were required to have a history of at least five years. Funds must rank in the first or second quartile for the past three- and 10-year periods (quartiles rank funds in a category into four groups - first quartile represents the top performers over a given time period, and fourth is worst).
For ETFs, three- and five-year quartiles were considered. The emphasis is on core funds, or those that could account for the major part of a portfolio. Final cuts were made by favouring funds that have impressed me during my years as personal finance columnist for The Globe and Mail.
Here's the list, in alphabetical order:
1. Beutel Goodman Canadian Equity This is so predictable - the stock markets took off last year and this fund couldn't keep up with the fast crowd. Oh well. This is your kind of fund only if you keep your eye on long-term performance and don't get fussed about what's happening at the moment. Long-term results are above average, with much less volatility than the broader stock market.
2. CI Harbour This fund's results are good enough to have prompted me to pick its chief stock picker, Gerry Coleman, as money manager of the decade (you can read about him here). Risk-adjusted returns are the story with this fund. It manages down markets comparatively well, and it gets its fair share of rising markets. The long view is 10 years of returns that demolish the S&P/TSX composite index.
Investor Education on mutual funds:
3. CI Signature High Income Balanced funds are a hot commodity with investors right now, and this is quite a good one. It regularly beats its peers in the global neutral balanced category, and with far less volatility. The portfolio was about 42-per-cent tilted to bonds at the end of last year, suggesting a cautious stance. At 1.52 per cent, the management expense ratio way undercuts the peer average of 2.38 per cent.
4. Dynamic Value Fund of Canada A superior performer that, unusually, got only mildly hammered in 2008. Its loss of 28.2 per cent compares with a drop of 30.7 per cent for the average Canadian focused equity fund, and 33 per cent for its benchmark stock index. There's a heavy 55-per-cent concentration in energy and mining stocks here, so don't get complacent about risk.
5. iShares CDN Bond Index Fund This ETF - think of an index-tracking mutual fund that trades like a stock - gives you exposure to the entire Canadian bond market (government plus corporate) concentrated in one little pill. Toss it into your portfolio and you've got your bond coverage taken care of. The MER is 0.30 per cent, compared with an average of 1.68 for Canadian bond funds.
6. iShares CDN LargeCap 60 Index Fund The 60 most dominant stocks listed on the TSX packaged into something that costs you just 0.17 per cent a year to own. A true bargain, and a formidable competitor to all Canadian equity funds. The definitive ETF here in Canada.
7. iShares CDN Short Bond Index Fund Just the thing for investors who recognize the need to maintain holdings in bonds in all market conditions, but want to play it safe when interest rates rise. The short-term bonds in this ETF will hold up better against higher rates than a conventional bond fund, including XBB.
8. Mackenzie Ivy Foreign Equity A fund you look at if you buy into the concept of sacrificing returns in good markets for strong protection in down markets. Loss in 2008 for this fund: 6.7 per cent; loss for the average global equity fund: 30.1 per cent. Predictably, it got skunked in 2009.
9. Mawer Canadian Balanced RSP A "fund of funds" product, which means it's primarily assembled from equity and bond funds in the low-profile but excellent Mawer Investment Management family. The MER is dirt cheap for a fund of this type at 1.03 per cent, and the results are consistently good. Just a thought, but this could be your entire RRSP in a single fund.
10. Mawer World Investment They say Canadian investors should invest globally because it's not smart to concentrate on only 3 per cent of the global market. What they don't tell you is that foreign equity funds are a boneyard for Canadian money managers. This international equity fund (everywhere but North America) is a notable exception.
11. PH&N Bond-D Low fees plus smart management come together in this consistent top-tier performer. Lots of corporate bonds here, which help punch up returns and take the edge off the pain when interest rates rise. Make sure you ask for the supercheap D version of this fund, which costs a minimum of $5,000.
12. Any Big Bank Dividend Fund BMO Dividend, CIBC Dividend Growth, RBC Canadian Dividend, Scotia Canadian Dividend and TD Dividend Growth - all do a good to excellent job of exposing you to the smart investor's portfolio bedrock of blue-chip stocks paying dividends.
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