Q&A: 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.

Do you have a money question you’d like to ask Gordon? Find out how to submit it here and then check out our Money section regularly to see if it was chosen for a response. Sorry, we cannot send personal answers.