Sleeper RRSP funds
The big five banks control a big chunk of the RRSP mutual fund marketplace. Many people prefer them, not necessarily because they have the best products but because of convenience and cost (most of their funds are no-load).
The most popular bank funds attract tens of millions of dollars in new RRSP money every year. But there are some others in the five line-ups that are not well-known but worthy of consideration for inclusion in a retirement plan. Here are three big bank sleeper funds to consider. Ask your financial advisor if they are right for you.
BMO Global Monthly Income Fund. This fund is a Canadian proxy for the UBS Global Allocation Fund. The UBS fund invests in a portfolio of U.S. and international equities and bonds, with an allocation of 68 per cent equities and 32 per cent bonds/cash as of the end of September 2006. The geographic focus is heavily on the U.S. with 73.6 per cent of the total assets. The equity side of the portfolio concentrates on blue-chip stocks such as Citigroup, Microsoft, and Wells Fargo, however there are also a number of lesser-known names in the mix like Illinois Tool Works Inc. There is also a small emerging markets component, held through iShares MSCI Emerging Markets Index Fund. The bonds are mainly U.S. Treasuries although there is a 7 per cent foreign bond weighting with an emphasis on euro-based notes. The UBS fund has a very good record, with a five-year average annual compound rate of return of 11.8 per cent to Sept. 30. However, it is important to keep in mind that the UBS fund is denominated in U.S. dollars. The Canadian dollar return over the same period would be much less because of the rise in the value of the loonie during that time. Over the 12 months to Dec. 31, the BMO version of the fund produced a gain of 8.2 per cent. That was below average for the Global Balanced – Equity Focus category but offsetting that is the fund’s low risk (the UBS fund only lost money in one calendar year over the past decade) and good cash flow, which can be reinvested in your RRSP. This fund is suited for investors who want to add more international diversification to their RRSP with a low-risk, income-producing security. Rating: $$$.
Scotia Total Return Fund. This fund has taken on a new life since the well-known house of Connor, Clark & Lunn assumed management responsibilities at the start of 2004. The mandate is to provide long-term growth with “modest” income and the income side is modest indeed – only 20c per unit in 2006. But overall results have looked much better. The equities side favours large-cap value stocks, while the fixed-income portion is invested mainly in federal and provincial issues. The gain for the year to Dec. 31 was 11.1 per cent, well above average for the category. The fund displays below-average volatility. This is starting to look like a solid performer and is worth considering for an RRSP. Rating: $$$.
TD U.S. Large Cap Value Fund. As the name suggests, this fund zeros in on large-cap American stocks, mainly dividend-paying companies like General Electric, Microsoft, AT&T, and Merck. Manager Brian Rogers is chief investment officer of the U.S. firm of T. Rowe Price, a well-known value-oriented house. The fund uses the Russell 1000 Value Index as its benchmark. It’s only been around for a little more than three years, but we like what we have seen so far. The one-year gain to Dec. 31 was a very strong 16.7 per cent, much better than the 10.6 per cent average for the category. That was good enough to pull the three-year average annual compound rate of return to above average at 6.7 per cent. There is a currency-neutral version of this fund available which could be used if you are concerned the Canadian dollar will appreciate against the U.S. dollar as it did in the 2003-2006 period, although I don’t believe that is likely. This would be a fine choice for a U.S. fund in your RRSP because of the conservative mandate and style. Rating: $$$.