Which mutual funds are best suited for a RRIF?
Many people had to convert their RRSPs to RRIFs by the end of 2005. In many cases they may be wondering whether the mutual funds they have been holding in their RRSP for years are still appropriate now that they have to start drawing money from their registered plan. The answer is: probably not.
A RRIF is a totally different animal from an RRSP. In the later case, long-term growth is the main objective. With a RRIF, the priorities shift to safety and income. This often means a complete portfolio overhaul.
I have some suggestions that you can take to your financial advisor to help with the transition process. The following funds, drawn from my Mutual Funds Update Recommended List , meet my RRIF criteria for both safety and income. All performance figures are to Nov. 30.
BMO Monthly Income Fund. This is not the top-performing fund in its category by a long shot, but it offers good cash flow (6c a unit monthly) and has an excellent safety record plus a well-diversified portfolio. The one-year gain was just under 12 per cent.
CIBC Monthly Income Fund. This one also pays 6c a unit each month but the cash yield is le than with the BMO fund because the net asset value (NAV) is higher. Total return is much better than that of the BMO fund, however, with the latest one-year gain being an impressive 19.9 per cent. Risk is somewhat higher than with the BMO fund although this fund has never had a losing year.
Dynamic Focus+ Diversified Income Trust Fund. This fund invests almost exclusively in income trusts. It has a very good performance record and pays a monthly distribution of 8c a unit. However, there’s more risk here than in a diversified portfolio. Latest 12-month gain was 20.2 per cent.
Mackenzie Sentinel Income Fund. The attraction here is low risk (the fund has never lost money over a calendar year), a diversified portfolio, and a respectable monthly cash flow of 3.33c per unit. However, if high yield is your main priority there are better choices.
Phillips, Hager & North Bond Fund. This is one of the best bond funds in the country and every RRIF of any size should have a place for it or the companion PH&N Total Return Bond Fund. Returns are consistently above average, the fund is no-load, and the MER is an attractive 0.59 per cent. Quarterly distributions have been running at 10c per unit.
Phillips, Hager & North High Yield Bond Fund. There’s more risk here than in the Bond Fund but the return potential over time is higher and so are the quarterly distributions, at 15c per unit. High-yield bonds are coming off a relatively weak year, however, so the fund shows a one-year gain of just 5.6 per cent, well below the three-year average of 10.4 per cent.
TD Canadian Bond Fund. This well-managed entry offers a nice blend of government and corporate issues. Returns are above average over all time frames. Distributions are paid quarterly. They vary but are usually between 14c and 16c per unit, except for a higher payment in December.
Bottom line: If you have converted to a RRIF and haven’t started to restructure your portfolio to meet the new priorities, don’t try to do it all at once. Allow about six months for a full change-over.
Adapted from an article that originally appeared in Mutual Funds Update, a monthly newsletter that provides advice on fund selection and strategies. For subscription information: www.buildingwealth.ca/promotion/50plusproducts.htm