Canadian
funds worth a look
Like the
leaves turning colour and blossoming trees, the season of the RRSP is upon us,
and entering into its seventh-inning stretch. This time of year is usually
witness to a barrage of fund company marketing campaigns, investment seminars,
and the mad rush to make that last minute RRSP contribution. Before the
eleventh hour is upon us, it might be wise to do a bit of homework before
plunking down this year’s annual contribution. Hence, this week is the first of
a two-part series providing some food for thought as we head into the last
couple of weeks of this season.
I’ve
written this so many times in this space, you’re probably tired of hearing it,
but it is the most important lesson an investor can learn. When making
investment decisions, your reference point should always be back to the basics
– your objectives and constraints.
I’m talking
about developing a strategy, first and foremost, before even thinking about
specific investments. A previous article (http://www.sterlingmutuals.com/Telus_SepNetSales_19oct2001.htm)
expands on the finer details to ponder in developing your strategy.
Having a
strategy based on well thought out goals and expectations are key to avoiding
the classic mistakes that investors have repeated over and over through time.
How do you know if you’ve broken the cycle or not? Are you just now jumping
into precious metals funds and bond funds after a year of socking piles of
dough away in money market funds? If so, you may still be running in circles.
If not, let’s talk investment options.
This
category refers to funds emphasizing the shares of both larger (large cap) and
smaller (small cap) Canadian companies.
If you’re
read my column for any length of time, you know that I have always had a bias
in favour of stock funds managed with a value-orientation. While no manager
ever plans to overpay for a stock, those money manager classified as
“value-oriented” tend to be more conservative in their future expectations and
a little stingier than most when it comes to establishing their “buy price”.
Some of my favourite Canadian large cap funds include CI Harbour, Spectrum Canadian
Investment, Mawer Canadian Equity, and Trimark Canadian SC. As for small cap
funds, some of the better choices in this category include Trimark Canadian
Small Companies, Mawer New Canada, and Standard Life Growth Equity.
I think
small caps remain more attractive at this time and probably deserve a weighting
in most portfolios that is slightly higher than normal. However, be sure to
pair your funds up properly. In other words, if you like Trimark Canadian for
large caps, a good fit for small caps might be Standard Life Growth Equity. If
you have a self-directed RRSP – where you can combine the funds of many firms
in one plan – you’ll have the kind of flexibility you need to mix and match
complimentary management teams.
I’m generally
not a fan of balanced funds, but I realize they provide some benefits to
investors – namely the convenience of a “one decision” investment and the
built-in stability of having stocks and bonds in one package. For more
knowledgeable investors and for people who want more control over their mix of
stocks, bonds, and cash, I usually refrain from recommending balanced funds.
However, for those who can’t be bothered there are a few that are worth
investigating.
Trimark
Income Growth SC, McLean Budden Balanced Growth, and Perigee Accufund.
Picking
bonds funds is much easier, I think, that most other funds. With stock funds
there are things like foreign content policies, management style, types of
stocks emphasized, etc. The selection process becomes so much easier as you get
into more and more conservative fund categories. Put another way, the more
conservative the fund type, the more important fees are in the selection
process.
Perigee
Active Bond, Beutel Goodman Income, and McLean Budden Fixed Income are three of
my favourites for broad based bond exposure at reasonable fees. All have
management expense ratios (MERs) well under 1 per cent. For bond funds
emphasizing the higher yielding (but higher risk) corporate bonds, TD Canadian
Bond and Trimark Advantage Bond are two fine choices.
While my
suggestions are no substitute for personalize, professional advice, they should
provide you with some direction as you run through the maze of RRSP investment
options over the next couple of weeks. This week’s article covers only funds
for the Canadian portion of RRSPs.
Next week,
we’ll take a look at some top choices for foreign and specialty funds.
Dan Hallett, B.Comm., CFP, CFA is Senior
Investment Analyst with Sterling Mutuals Inc. He can be reached at dhallett@sterlingmutuals.com Sterling Mutuals Inc. is registered as a
mutual fund dealer in Ontario, British Columbia, and Manitoba.