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The best mutual funds for retirement

These funds are gold-rated, and have either four or five stars

Ian Tam, CFA 21 February, 2020 | 12:45AM
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Earlier this week, I outlined the idea that choosing the asset classes in which to invest within your tax sheltered RRSP or TFSA is arguably more important than selecting the investment itself. As tax shelters are by nature designed to benefit you in retirement, having an idea of when you want to retire will inherently allow you to budget your ‘risk’ accordingly. The closer you are to retirement, the less risk you can afford to take (see prior article on human capital vs. financial capital).

Stressing this concept, here are some of the best rated mutual funds available to retail investors in Canada based on some of the most popular mutual fund categories. To find these funds, I scoured Morningstar’s Canadian mutual fund base and looked specifically at funds with a combination of great historical performance (by looking for Star Ratings of four or five stars), and assessed with the potential to outperform others in the category on a forward looking basis (by looking for a Morningstar Quantitative Rating of Bronze, Silver, or Gold).

Important Note: Many of the funds listed here are F class funds, typically made available through fee-based advisors whose advice is also paid for via an overall management fee on your account (separate from the MERs listed below). The advice, planning, and financial coaching from a trusted advisor is a worthwhile tool in your toolbelt and not something that should be overlooked. In fact, Morningstar has quantified the value of this advice through a term we call “Gamma”. This is a great list of mutual funds as a starting point for research but does not constitute financial advice. It is always recommended to speak to an advisor or investment professional before investing.

Dividend & Income Equity 
The funds in this category invest in dividend-paying securities which continues to be a popular style of investment in Canada. To qualify, funds most hold at least 70% in domestic Canadian equities.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
Sun Life Dynamic Equity Income F Gold 5 Stars 1.71 16.58 10.02 9.20 1.05
RBC Canadian Equity Income F Gold 5 Stars 1.56 14.71 7.70 7.02 0.76
RBC Canadian Dividend Class F Gold 4 Stars 1.97 13.44 7.01 7.23 0.78
Dynamic Dividend Gold 5 Stars 1.70 15.08 8.69 8.10 1.60

Morningstar Direct Data as of Dec 31, 2019


Equity
The funds in this category must invest 90% in Canadian equities that are generally larger in size.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
RBC QUBE Low Vol Canadian Eqty Fund F Gold 5 Stars 2.23 16.73 7.85 7.42 0.77
Mawer Canadian Equity A Gold 4 Stars 2.11 14.98 6.36 6.95 1.17
Manulife Cdn Investment Class F Gold 4 Stars 2.12 15.21 6.58 7.20 1.24
Counsel Canadian Value Sr I Gold 4 Stars 0.51 10.93 5.88 6.46 0.17

Morningstar Direct Data as of Dec 31, 2019


Neutral Balanced
Funds in this category must invest at least 70% of total assets in a combination of equity securities domiciled in Canada and Canadian dollar-denominated fixed income securities.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
RBC Managed Payout Soln-Enhanced Plu F Gold 4 Stars 1.82 11.44 6.52 6.03 0.85
Manulife Monthly High Income Class F Gold 5 Stars 2.32 11.97 7.36 5.82 1.10
Manulife Cdn Balanced F Gold 5 Stars 2.13 14.07 7.94 6.68 1.08

Morningstar Direct Data as of Dec 31, 2019


Global Equity
Funds in this category will give investors exposure to larger cap stocks from around the world. A broad category, as 10-90% of holdings can technically be domiciled in North America.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
RBC Vision Global Equity Fund F Gold 5 Stars 0.54 22.96 15.80 11.21 0.99
RBC QUBE Low Vol Global Equity Fund F Gold 4 Stars 2.60 13.68 11.15 9.13 0.99
RBC Global Equity Fund F Gold 5 Stars 0.18 20.60 16.60 12.35 0.98
Mawer Global Equity A Gold 5 Stars 2.49 20.68 15.06 11.39 1.32
Manulife Global Equity Class F Gold 5 Stars 2.39 20.77 15.02 11.41 1.23
Dynamic Global Dividend Series F Gold 5 Stars 1.10 23.91 17.85 14.19 1.10
Capital Group Global Equity Canada F Gold 5 Stars 0.63 19.04 13.49 11.52 0.83

Morningstar Direct Data as of Dec 31, 2019


Global Fixed Income Balanced
Funds in this category must invest less than 70% of total assets in a combination of equity securities domiciled in Canada and Canadian dollar-denominated fixed income securities.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
Manulife Yield Opportunities F Gold 5 Stars 1.63 10.81 6.06 5.45 1.09

Morningstar Direct Data as of Dec 31, 2019


Global Neutral Balanced
This category of funds contains roughly a 50/50 split between stocks and bonds (ranging from 40-60%) with at least 30% invested outside of Canada.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
Sun Life Granite Balanced Class F Gold 4 Stars 1.51 11.95 7.01 5.53 1.09
Sun Life Dynamic Strategic Yield F Gold 4 Stars 2.78 12.79 6.96 5.17 1.13
Mawer Balanced A Gold 5 Stars 2.06 14.28 8.86 7.01 0.91
Manulife Global Strategic Bal Yield F Gold 5 Stars 0.54 15.69 8.55 7.55 1.18
Dynamic Dividend Income Series F Gold 4 Stars 2.76 12.18 6.10 4.75 1.12

Morningstar Direct Data as of Dec 31, 2019


US Equities
The bellwether of last year’s market rally, US equity funds must have 90% of their holdings in US-domiciled stocks.

Name MQR Morningstar Star Rating Total YTD Return 1-yr Returns 3-yr Returns 5-yr Returns MER
Sun Life Dynamic American F Gold 4 Stars 2.80 21.85 17.59 14.06 1.41
RBC QUBE Low Vol U.S. Equity Fund F Gold 4 Stars 2.00 17.95 14.80 12.69 0.76
Mawer US Equity A Gold 4 Stars 3.02 25.38 17.32 13.80 1.15
Manulife US Equity F Gold 5 Stars 3.02 25.05 17.39 13.92 1.26
DFA US Core Equity Class F Gold 4 Stars 0.27 16.48 10.68 10.32 0.27

Morningstar Direct Data as of Dec 31, 2019

Compared to the Canadian ETF market, mutual funds are more widely held – they represent a much larger portion of Canadian assets, with many more options. As such, the different categories are more thoroughly represented in this analysis. Of note are the ‘balanced’ categories which themselves are multi-asset categories that can provide reasonable options if disciplined re-balancing between stocks and bonds is not something you wish to do.

Target Date Categories
Although not represented in the top 10 categories by assets, the category of target date funds is a worthwhile mention. These types of funds typically de-risk over time by reducing exposure to riskier asset classes (like stocks). Aside from retirement, these funds can also be a useful tool for saving towards a specific goal like a child’s education through a registered education savings plan (RESP), for example. The funds listed here have performed well historically against their peers as denoted by their five-star ratings (which as a reminder is an indication of past performance only). 

Name Morningstar Star Rating Total YTD Return 1-yr Returns (%) 3-yr Returns (%) 5-yr Returns (%) 10-yr Returns (%) MER (%)
BMO Target Education 2025 Portfolio D 5 Stars 1.75 9.31 6.21 5.05   0.96
Fidelity ClearPath 2025 Port Series F 5 Stars 1.11 12.76 7.73 5.87 8.37 1.04
RBC Retirement 2025 Portfolio F 5 Stars 1.21 12.26 7.46     0.95
Fidelity ClearPath 2030 Port Series F 5 Stars 0.91 13.26 8.04 6.12 8.74 1.10
RBC Target 2030 Education Fund D 5 Stars 1.27 11.93 7.27 6.02   1.16
Fidelity ClearPath 2035 Port Series F 5 Stars 0.70 14.13 8.78 6.84 9.56 1.10
Fidelity ClearPath 2040 Port Series F 5 Stars 0.42 14.98 9.12 7.07 9.80 1.14
Fidelity ClearPath 2045 Port Series F 5 Stars 0.42 14.96 9.10 7.04 9.91 1.16
PH&N LifeTime 2050 Fund D 5 Stars 1.64 14.92 9.28 7.22   1.31

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About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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