It's never too early to start building a nest egg.
Mutual funds give younger investors an easy way to get their feet wet in the stock market. Because funds hold many securities, they can provide instant diversification for a registered retirement savings plan (RRSP).
Many funds require an initial investment of just $500. The tradeoff for investing at higher minimums is lower fees. Be mindful of these annual charges, however, which cover portfolio management and other expenses. Fees can nibble away at returns over time.
We asked analysts to recommend stock funds suitable for younger or more aggressive investors willing to tolerate more risk. Here are their picks.
James Gauthier, head of investment fund research at HollisWealth Inc., Toronto
- Franklin Bissett Canadian Equity
- Fund category: Canadian equity
- Management expense ratio (MER): 2.47 per cent
This fund has been a solid domestic equity offering for years, and "we believe that will continue to be the case," Mr. Gauthier says.
It has gained an average of 6.78 per cent annually for the 10 years ending Jan. 31. Garey Aitken, chief investment officer at Bissett Investment Management, co-manages the fund with Tim Caulfield. The pair look for growth stocks trading at a reasonable price.
The fund is about 25 per cent invested in the energy sector, which has been hurt by plunging oil prices. However, it has a bigger focus on service companies rather than highly leveraged producers, "so that has been a bit of a cushion," Mr. Gauthier said.
Top holdings include Brookfield Asset Management Inc., Canadian National Railway Co. and five banks. This fund's fee is slightly higher than the category median but "is not enough of a deterrent to stay away," he added.
- Mackenzie Cundill Value
- Fund category: Global equity
- MER: 2.56 per cent
This global fund owns out-of-favour stocks whose values are expected to eventually rise and "doesn't look like any index," Mr. Gauthier says.
Its managers, Lawrence Chin and Andrew Massie of Mackenzie Investments, try to ferret out stocks trading at a significant discount to their estimated net asset value. They are the latest managers on the fund, which has posted an annualized return of 6.79 per cent over the 15 years ending Jan. 31.
The portfolio, which holds 20 per cent in cash, is also 40 per cent invested in the United States and 12 per cent in Canada. It owns American International Group Inc. and Bank of America in addition to BlackBerry Ltd. convertible debentures.
Its fee is higher than the median in its category, but "we still like the fund," Mr. Gauthier said. "When buying it, you are placing a bet on the management team."
Dan Hallett, director of asset management at HighView Financial Group, Windsor, Ont.
- Black Creek Global Leaders
- Fund category: Global equity
- MER: 2.45 per cent
This stock fund, which invests in developed and emerging markets, is suited to investors willing to ride out the rough patches, Mr. Hallett says.
Bill Kanko of Black Creek Investment Management runs a portfolio of 25 to 30 stocks. "Long-term performance is solid, but it is marked by streaks of strong and weak returns," Mr. Hallett noted.
The fund underperformed global indices last year because it had just one-quarter of its assets in the U.S. market and had a sizable position in emerging markets, he said. The fund has averaged 13.37 per cent annually over five years, and 6.08 per cent over the 10 years ending Jan. 31.
Because its fee is on the high side, this fund is best suited to investors who are already dealing with a financial adviser, who then can provide them with financial advice, Mr. Hallett said.
- Steadyhand Small-Cap Equity
- Fund category: Canadian focused small-mid-cap equity
- MER: 1.78 per cent with a minimum investment of $10,000
This fund, which owns 17 Canadian and U.S. stocks, has been a strong performer in recent years, and it's among the cheapest offerings available in the small-cap space, says Mr. Hallett. It has posted a 12.82-per-cent average annual return for the five years ending Jan. 31.
The fund, which is run by Wil Wutherich of Wutherich & Co., lost 6 per cent last year due to its holdings in the energy sector. The energy investments did not stem from an outlook on the price of oil but were long-term bets on strong management teams and growing companies with solid balance sheets, Mr. Hallett noted.
Stantec Inc., Medical Facilities Corp. and Hibbett Sports Inc. are among the non-energy names in the fund. The managers can use its 12-per-cent cash position at the end of 2014 to pick up bargain stocks as they materialize, he added. "But this fund is not for the faint of heart. It is very concentrated."
Dave Paterson, fund analyst with D.A. Paterson & Associates Inc., Toronto
- EdgePoint Global Portfolio
- Fund category: Global equity
- MER: 2.22 per cent with a minimum investment of $15,000
This global fund, which is about 70 per cent invested in U.S. stocks, should benefit from an ongoing economic recovery south of the border, says Mr. Paterson.
EdgePoint Wealth Management Inc. follows a disciplined investment approach, and its managers see themselves as "business people buying businesses," he said. The team includes Geoff MacDonald, Tye Bousada and Ted Chisholm, all of whom once ran money at Invesco Canada Ltd.
Over the five years ending Jan. 31, the fund posted a 15.79-per-cent annualized return. It holds about 35 stocks, including Alere Inc., Microsoft Corp. and Wells Fargo & Co. The fund is suited to investors with a longer time horizon due to its concentrated portfolio, and the managers' patient, buy-and-hold strategy for companies, Mr. Paterson said. "The fund has the potential to experience periods of underperformance, and may also be more volatile than the broader market."
- Mawer Global Small Cap
- Fund category: Global small-mid-cap equity
- MER: 1.82 per cent with a minimum investment of $5,000
This global smaller-company fund is well diversified with more than 80 names and more than half of its equity exposure in Europe, Mr. Paterson says.
Paul Moroz of Mawer Investment Management looks for companies that have a sustainable competitive advantage and can earn a high return on capital. The fund has posted a 21.94-per-cent annualized return for the five years ending Jan. 31.
Top holdings range from Canadian names such as Constellation Software Inc. to foreign companies such as NCC Group and Cineworld Group. While the fund may lag a global index at times, it has managed to consistently outperform its peers with less volatility, Mr. Paterson noted.
"It also does an excellent job of protecting capital in down markets without significantly sacrificing performance in up markets," he said.