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What are we looking for?

Target date mutual funds for your child’s future postsecondary education.

The screen

During this back-to-school season, parents across Canada are rightfully fretting about what is in store for their children as the education system scrambles to manage the potential effects of the pandemic. If your child’s future postsecondary tuition is about the last thing on your mind, there’s good news – target date funds can be an easy option for those wishing to set it and forget it.

Target date funds can best be described as multi-asset portfolios with an added feature of dynamically and automatically changing the mix between stocks and bonds over time. The idea being that the closer you are to the time your savings are required (the target date), the higher the allocation will be to bonds, thereby reducing the chances of steep losses at the critical point when you need to pay for tuition.

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Like all mutual funds, returns are not guaranteed for these types of funds, but the added “de-risking” feature is distinctive. Coupled with a tax shelter such as a registered education savings plan, investments in these funds can help put a solid dent into future tuition payments.

To find suitable candidates within this group of funds, I used Morningstar Direct to search for Canadian-domiciled target date funds that have been given a Morningstar Rating Overall of four stars or more. Recall that the Morningstar Rating Overall, commonly known as the star rating, is a historical comparison of after-fee risk adjusted returns against funds in the same category. The screen spanned across multiple categories of target date funds and considered only the oldest share class of each fund.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

The funds that met the requirement are listed in the accompanying table along with their target date category (note that the name of the category lines up roughly with when you plan to withdraw your capital), associated management expense ratios and trailing returns.

The table also shows multiple share classes of funds. A-class funds are offered through full-service brokers and include the cost of advice. F-class funds are offered through advisers who manage fee-based accounts, and while the fees appear lower, they exclude an overall management fee typically charged by the adviser for the management of the account. Finally, D-class funds offer no advice and are offered through discount brokerages.

Keen readers will notice that some of the funds listed have the word “retirement” built in, appropriately. The concept of de-risking over time applies similarly for a retirement savings goal.

This article does not constitute financial advice. It is always recommended to speak to a financial adviser or professional before investing in any of the products listed here.

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Select target date funds

FundMorningstar CategoryMER (%)Morningstar Rating OverallInception DateYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)
BMO Target Education 2025 Portfolio D2025 Target Date Portfolio0.964 Stars11/13/20142.94.45.85.7n/a
Fidelity ClearPath 2025 Port Series A2025 Target Date Portfolio2.384 Stars11/3/20052.65.96.05.06.6
PH&N LifeTime 2025 Fund D2025 Target Date Portfolio1.035 Stars6/30/20114.75.97.76.5n/a
RBC Retirement 2025 Portfolio F2025 Target Date Portfolio0.964 Stars10/11/20161.85.06.8n/an/a
RBC Target 2025 Education Fund A2025 Target Date Portfolio1.834 Stars7/3/20075.16.15.54.86.1
Fidelity ClearPath 2030 Port Series F2030 Target Date Portfolio1.105 Stars11/3/20053.17.57.66.68.4
PH&N LifeTime 2030 Fund D2030 Target Date Portfolio1.085 Stars6/30/20116.17.88.87.3n/a
RBC Retirement 2030 Portfolio F2030 Target Date Portfolio0.965 Stars10/11/20161.25.37.2n/an/a
RBC Target 2030 Education Fund D2030 Target Date Portfolio1.164 Stars7/9/20122.96.26.96.5n/a
Fidelity ClearPath 2035 Port Series F2035 Target Date Portfolio1.105 Stars11/3/20052.77.88.17.29.2
PH&N LifeTime 2035 Fund D2035 Target Date Portfolio1.135 Stars6/30/20117.09.29.57.8n/a
PH&N LifeTime 2040 Fund D2035+ Target Date Portfolio1.194 Stars6/30/20116.19.09.37.9n/a
PH&N LifeTime 2045 Fund D2035+ Target Date Portfolio1.265 Stars6/30/20115.38.89.38.2n/a
PH&N LifeTime 2050 Fund D2035+ Target Date Portfolio1.324 Stars8/11/20142.97.58.78.2n/a

Source: Morningstar Direct. 

Data as of Sept. 8.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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