Canadian
funds to consider for your RRSP
It’s that
time of year again. Christmas bills are paid and tax time is approaching. But
wait – how much of a RRSP contribution will it take to drop your tax bill to
nil (or give you a refund)? That’s precisely the question many ask this time of
year. And, unfortunately, many procrastinate – both on the contribution and
where it will be invested. Hence, here are a few ideas for good Canadian funds
to consider for this year’s RRSP contribution.
If you look
at stock indexes, Canada looks almost as expensive as our American neighbours.
With a lean dividend yield hovering around 2 per cent and a median
price-to-earnings (P/E) ratio in the mid-20s; our stock index (the S&P/TSX
Composite) remains expensive.
If you’ve
read this column for any length of time, you’ll know that I have a personal
bias toward money managers with a high level of sensitivity to the price they
pay for stocks – i.e. value managers. Hence, here are a few ideas if you’re
looking for a Canadian stock fund this year.
CI Canadian
Investment is a top-notch fund managed by the talented and insightful Kim
Shannon. Consistent performance, low turnover, and a very disciplined process
make this a great choice as a core holding.
Mawer
Canadian Equity is another of my favourites. Managed by Jim Hall of Mawer
Investment Management in Calgary, this 30-stock portfolio holds no foreign
content and little cash. Hall nicely blends his desire for growing companies
with his intolerance for high prices. And he’s not just looking for growth, but
firms that make smart use of their capital. This is a great core holding.
Other funds
worth considering include CI Harbour, Mackenzie Cundill Canadian Security,
Mackenzie Universal Canadian Growth, Saxon Stock, Synergy Canadian Value Class,
and Trimark Canadian SC.
For funds
investing in smaller companies, consider Beutel Goodman Small Cap, Clarington
Canadian Small Cap, Mawer New Canada, Saxon Small Cap and Standard Life
Canadian Small Cap A.
Remember;
hold no more than two funds for Canadian stock exposure – one investing in
larger companies and one in smaller firms. That’s it. If you already hold
another fund not on this list – either stick with what you’ve got or change it
altogether. Don’t simply add to your “collection” of funds.
When
dealing with bond funds, fees are critically important. Hence, I won’t go into
specific picks for plain vanilla bond funds, except to urge you not to pay much
more than (a MER of) 0.8 per cent annually for bonds.
However,
it’s worth reminding you of my previous comments in this space about the
opportunities in corporate bonds. My Strategy
Update from December will refresh your memory on my view and top picks
among high yield bond funds.
Since
roughly 2/5th of most balanced funds are held in bonds, fees remain
an important factor in the selection of balanced funds. I must admit that I’m
not a big fan of these funds, but I recognize their appeal, and application to
many portfolios.
For those
willing to get more involved, I’d rather see investors take what they’d
otherwise plunk into a balanced fund, and split it – 60 per cent in a Canadian
stock fund and 40 per cent in Canadian bonds.
If you
still want the convenience of buying one fund, you won’t go far wrong with
Mawer Canadian Balanced RSP, Saxon Balanced, or Trimark Income Growth SC.
As noted in
my comments under Canadian stock funds, it’s important to realize that I’ve
jotted down the names of many investment funds. But, by no means should you
load up on all of them. Equally important to picking good stand alone funds
(perhaps more so) is making sure to put them together in a manner that provides
you with a mix of funds, each of which plays a unique role in the context of
your total portfolio. That should set the stage for strong diversification benefits
without unduly sacrificing your return potential.
Next
week: Top foreign picks.
Dan Hallett, B.Comm., CFP, CFA is the 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, Alberta, and Manitoba.