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Funds to Consider for Your RRSP

Wondering where to invest? Start your research here!

Ian Tam, CFA 22 February, 2021 | 3:31AM
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With the 2020 tax year RRSP contribution deadline fast approaching (reminder: March 1st, 2021), many Canadians want ideas on where to invest. Remember, though, more important than picking a fund is to ensure that your overall asset allocation (mix between stocks and bonds) is in line with your risk profile. As a rule of thumb, the farther away you are from retirement, the more risk you’ll be able to afford to take on.

Once you have that in place, it’s time to look at possible funds. To do that, I used Morningstar Direct to look for ideas based on two dimensions.

1.The Morningstar Quantitative Rating for Funds
This is Morningstar’s forward-looking assessment of a fund’s ability to produce positive alpha after fees. The assessment is based on three pillars of our analysis: people (the quality and tenure of the management team), process (the effectiveness of management and risk mitigation approaches) and parent (the degree to which the fund company lines up their strategy with the investor). Since the release of these ratings in Canada, medalist rated funds (Gold, Silver or Bronze) have on average outperformed those that are rated Neutral or Negative.

2.The Morningstar Rating for Funds
Commonly known as the “Star Rating,” this is a look back at a fund’s risk-adjusted after-fee performance against peers in the same category. Even though the rating is backwards looking, our data shows that the rating does have some staying power in that over time, 5-star funds as a group tends to outperform 4 star funds, which outperform 3-star funds, etc. Moreover, a recent study for the Canadian market showed that over the last 10 years, 1 star funds were more than twice as likely to be liquidated than 5 star funds. The star ratings are both a good indication of past performance, and an effective starting point for further research.

To make the picks relevant for most readers, I isolated the ten largest categories by assets in Canada and considered the oldest share class of each fund. I then looked for four and five-star rated funds that received a Morningstar Quantitative Rating of Silver or Gold.

Balance Fund Categories
Target allocation funds (also known as balanced funds) hold a relatively static mix of stocks and bonds. Designed as a single ticket approach to investing, these funds offer investors convenience in that they re-balance regularly. Money invested in these funds represent over half of retail assets. In Canada there are six categories of funds of this nature:

Exhibit 1

Within this context, here are some picks within the most popular balanced categories. Click on the fund name to read more about the fund and the Morningstar category it belongs to:

Name

MER (%)

Morningstar Star Rating

MQR

1-yr Return

3-yr Return

5-yr Return

FDP Balanced Portfolio A

1.20

4

Silver

5.46

6.13

6.75

Manulife Cdn Balanced F

1.08

5

Silver

3.73

6.12

6.95

Manulife Monthly High Income Class F

1.07

4

Gold

3.94

4.72

6.70

PH&N Monthly Income Class F

0.85

4

Silver

2.67

4.62

6.45

RBC Managed Payout Soln-Enhanced Plu F

0.85

4

Silver

3.84

5.58

7.27

Manulife Balanced Inc Priv Trust C

0.88

4

Silver

6.97

5.95

7.80

Manulife Yield Opportunities F

1.09

4

Silver

6.93

5.65

7.71

Manulife Strategic Dividend Bundle FT

1.11

4

Silver

12.89

9.27

9.88

Manulife Value Balanced F

1.22

5

Silver

22.57

9.93

12.30

Marquis Balanced Portfolio V

0.19

5

Gold

8.68

8.46

8.72

Sun Life Granite Balanced Class F

1.09

4

Silver

5.43

5.80

6.59

Manulife Global Small Cap Balanced F

1.26

5

Silver

12.25

9.42

10.05

Marquis Growth Portfolio V

0.20

5

Silver

10.24

9.06

10.41

PH&N Balanced Fund D

0.88

5

Silver

12.20

8.36

8.94

RBC Vision Balanced Fund F

0.95

5

Silver

14.03

10.13

9.17

Sun Life Granite Balanced Growth Port F

1.15

4

Silver

6.37

6.50

7.45

Source: Morningstar Direct, Data as of Jan 31, 2021

Of note is RBC Vision Balanced Fund F, which is the only fund on the list that Morningstar deems as a sustainable investment.

Pure Asset Class Categories
For investors who are looking to augment their current asset class exposure with a fund that manages only bonds or stocks, the following may offer ideas. Click on the fund name to read more about the fund and the Morningstar category it belongs to:

 

Name

MER (%)

Morningstar Star Rating

MQR

1-yr Return

3-yr Return

5-yr Return

Fidelity Canadian Opportunities Sr B

2.27

5

Silver

24.09

15.25

14.61

Counsel Canadian Growth Sr I

0.17

5

Silver

10.08

9.07

11.72

Fidelity True North Cl F

1.14

5

Silver

7.99

8.29

8.50

Manulife Cdn Investment Class F

1.23

4

Gold

-0.91

3.75

7.36

Dynamic Dividend

1.59

5

Gold

-0.87

4.76

8.10

Dynamic Equity Income

2.13

5

Gold

-1.42

4.87

7.69

Fidelity Dividend Series F

0.95

5

Silver

5.17

7.04

6.96

Capital Group Global Equity Canada F

0.82

5

Gold

30.11

15.22

15.98

Marquis Institutional Global Eq Port V

0.31

5

Gold

24.18

14.94

15.72

RBC Global Equity Focus Fund F

0.98

5

Gold

24.43

14.79

15.55

Fidelity US Foc Stk Ccy Netrl Cl Sr F

1.20

5

Silver

24.34

15.50

18.86

Fidelity US Focused Stock Class F

1.18

5

Silver

22.57

18.63

18.11

RBC Life Science & Technology Fund A

2.10

5

Silver

24.15

18.96

17.85

Marquis Institutional Bond Portfolio V

0.14

4

Gold

4.61

5.17

3.81

RBC Monthly Income Bond Fund F

0.54

4

Silver

5.57

4.98

3.80

PIMCO Monthly Income F

0.86

5

Silver

3.84

4.07

5.31

BlueBay Glb Sovereign Bond (Can) F

0.71

4

Silver

3.62

4.66

 

Capital Group World Bond (Canada) F

0.89

4

Silver

4.03

5.74

 

Source: Morningstar Direct, Data as of Jan 31, 2021

The funds listed have more than one share class available. These chare classes delineate how the fund is purchased. Each share class has a different MER attached to it. Fee-based or F-class funds often have the lowest MERs, but this is outside of an overall management fee that is charged by your advisor. Commission-based share classes often have higher fees, but a fee for advice is bundled in. D-class shares are tagged for “Do-it-yourself” investors and are typically made available through discount brokerages, sans advice.

Because fees are such a large part of a fund’s ability to produce returns for you, it is worthwhile to do some research to understand whether there is a different share class of the same fund available to you at a lower cost.  

This article does not constitute financial advice. It is always recommended to speak with a financial advisor or investment professional before purchasing any of the products listed here.

 

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About Author

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

 

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