When to buy clone funds

Clone funds are hot, but are they right for your RRSP?

The big marketing push this RRSP season is clone funds, those replicas of high-performance U.S. and foreign funds that, by the magic of financial smoke and mirrors, have been made 100% RRSP eligible with RevCan’s blessing.

Clones may have a legitimate place in your RRSP portfolio, but be sure you actually need them before you invest. The MERs are usually higher than you’ll pay for the parent fund, so if you still have foreign content room available there is no point in adding to your costs by using a clone.

Many people haven’t even maximized their 20% foreign content, so check that first. The figure should be on your RRSP statement; if it’s not complain to the plan administrator. Then see if you’re entitled to additional foreign content room because you hold units in a labour-sponsored venture capital fund. The formula is $3 in additional foreign content for every $1 in book value, to a maximum of 40% of your plan. Your RRSP statement probably will not include this information. So you’ll have to do the calculation yourself.

If you’ve maximized your allowable foreign content and still wanto add more, then it’s time to consider clones. But weigh them against the less expensive option of using RRSP-eligible index funds before you make the final decision.

Reprinted from the Internet Wealth Builder newsletter, published by Gordon Pape Enterprises Ltd.