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:


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About Author

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


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