Mutual funds for RRSPs
For many Canadians, mutual funds are a key part of their RRSP mix. But every year, it’s the same dilemma — which funds to select? Here are some that I think should be at the top of the top of your list this year. Discuss them with a financial advisor.
CI Canadian Investment Fund. One of the first things I look at when selecting equity funds for RRSPs is risk. You don’t want funds in your retirement plan that could lose half their value if stock markets stage a repeat of the 2000-2002 bear market. Instead, choose funds that are conservatively managed and which have a proven record of doing well in tough times. This one meets the test nicely. It has never suffered a losing year since Kim Shannon took over the management in 1996 and has an excellent record of profitability. Over the five years to the end of 2005, which encompassed the bear market period, this fund gained an average of 12.9 per cent annually. That was more than double the average for the category and almost double the gain of the S&P/TSX Composite Index during that period. All RRSP investors should want Ms. Shannon working for them. Recent net asset value (NAV): $24.84.
RBC O’Shaughnessy CanadiaEquity Fund. This fund doesn’t have the spotless record of CI Canadian Investment, but it only missed by a bit. That was in 2002 when the NAV fell 2 per cent. Considering that equity markets were trashed that year, this was a very good result. The fund’s five-year average annual gain of 13.2 per cent is actually slightly better than that of CI Canadian Investment, although that’s due in part to a much lower management expense ratio (MER). This fund also had the added advantage of being no-load. The recent NAV was $18.87.
Chou Associates Fund. For the most part, U.S. equity funds have not performed well for Canadians in recent years because the rise of the loonie has eroded any stock market gains. But this fund is an exception. Using a value approach to stock selection which sometimes results in unusual picks, manager Francis Chou not only succeeded in guiding this fund through the bear market unscathed but actually managed to gain 30 per cent for his investors in 2002 just as stocks were hitting rock bottom. The five-year number tells the story: this fund produced an average gain of 15.2 per cent a year while the average fund in the category was losing 4.4 per cent. According to The Fund Library, that made it the number one performer out of 174 U.S. equity funds for the period. You’ll need $10,000 to take a position but if you have that kind of money in your RRSP it’s worth it. Recent NAV was $78.32.
Saxon Balanced Fund. Some people want to find a well-managed balanced fund for their RRSP and let it go at that rather than trying to juggle a stocks-bonds-cash mix. This one does the job. It’s one of the few balanced funds that did not lose money during the bear market; in fact it actually managed to post a gain of 3 per cent in 2002, while most balanced funds were in the red. The record shows that it tends to outperform in both strong and weak markets. The one-year gain to Dec. 31 was 11.2 per cent, more than a point and a half above the category average. Over five years, the fund has produced about triple the return of the average Canadian balanced entry. There’s a good blend of equities and bonds in the portfolio with a small cash position. Minimum investment is $5,000. Recent NAV: $22.53.
Phillips, Hager & North Total Return Bond Fund. Let’s get the bad news out of the way up-front: you’ll need $25,000 to open an account with PH&N. It doesn’t all have to be in one fund, however. If your RRSP has that kind of money, you should seriously consider shifting some of it to this Vancouver-based company if only to gain access to what I consider the best fixed-income team in Canada. This is their flagship bond fund but they offer several others that are worth a look. The PH&N Short Term Bond and Mortgage Fund is especially appropriate for those who want to reduce risk at a time when interest rates are rising. For long-term RRSP appreciation, this would be the number one choice, however. The low MER of 0.61 per cent and the steady performance record make it a fine choice for a registered plan. The recent NAV was $10.88.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 go to www.buildingwealth.ca/promotion/50plusproducts.htm