Q&A: Portfolio funds

Question: I am wondering what your thoughts are on the portfolio mutual funds that seem to be gaining in popularity? I am referring to those funds that actually hold a variety of mutual funds based on a conservative, balanced, growth, or aggressive growth asset allocation. Is this an approach that you might suggest for someone just starting out with a small portfolio of say $5,000 to $10,000? If so, are there some specific portfolio funds that you would recommend? – Chris Y.

Gordon Pape answers: You are right — these funds of funds are becoming increasingly popular and in fact are outselling stand-alone funds. The reason appears to be the attraction of one-stop shopping. No need to carefully build a portfolio, just buy one off the shelf. The problem is the overwhelming majority of these portfolio funds are mediocre or worse. I recently did a fresh study of them and reached the same conclusion as in the past — a well-managed balanced fund will perform better. Among my choices: Dynamic Power Balanced Fund, Steadyhand Income Fund, and AGF Monthly High Income Fund.

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