Funds for an RESP

Q – I have $2,000 to invest in a registered education savings plan (RESP) for my three children. Which mutual funds do you recommend? This is the first contribution and the children are aged 1, 3 and 6. – C.T.

A – Since your children are very young, there’s a long time horizon involved – at least 12 years, assuming the oldest starts college at 18. Therefore, the RESP can have a higher degree of risk than would be the case if university was, say, five years away.

Therefore, I suggest you place the emphasis on well-managed equity funds. However, you should avoid funds that historically have shown a high degree of volatility. You won’t feel very comfortable if the RESP loses 20% in the first year.

There are no foreign content limits in an RESP – apparently through an oversight in the tax law. That means you aren’t constrained in that regard.

Historically, U.S. and global equity funds have shown better rates of return than Canadian stock funds so I suggest you put the emphasis there. With your initial investment, you might want to put $1,000 into a U.S. equity fund, $500 into an international or global fund, and500 into a Canadian equity or balanced fund.

To minimize risk, choose funds with a value style of management.

Some of the top U.S. equity value funds in my 2002 Buyer’s Guide to Mutual Funds are AIC Value, Mutual Beacon Fund (from Franklin Templeton), and O’Shaughnessy U.S. Value Fund (from Royal Bank).

Among international and global value funds, we give top rating to AGF International Value Fund. We also like Mackenzie Cundill Value Fund, Mackenzie Ivy Foreign Equity Fund, and Trimark Fund (from AIM group)

For Canadian equity value funds, look at Mackenzie Ivy Canadian, CI Harbour Fund, Spectrum Canadian Investment Fund, Saxon Stock Fund and Trimark Canadian Endeavour Fund.

As you go forward, add some growth funds to the mix. But a selection from this group will get your youngsters off to a good start. – G.P.