If you’re like many new investors, you’ve rushed into your bank near the end of February and put as much as you could manage into your RRSP. You may have made a hasty decision as to whether to go one or five years, and have probably had occasion to regret whatever decision you made.
After 2016’s 18-per-cent gain in the S&P/TSX Composite Index, and similar gains from some Canadian equity mutual funds, it may be tempting to jump into equity funds this February. That’s what many people did following strong years in the past. But sometimes the new year proved to be a disappointment like 2015 did, when the market tumbled 11 per cent. Some investors decided to get back out of funds after 2015, to accept their losses, including in some cases hefty deferred sales charges, and settle for GICs. They, therefore, missed 2016’s market rebound.
We think that if these same investors had approached the mutual fund markets with more care, they might now be the first step along the way to a rewarding investment program.
Because volatility can be unsettling to many new investors, we’ve picked two of the most conservative, stable equity mutual funds from our Top-40 list. But these funds still show better-than-average long-term records of growth, plus several other features, especially attractive for new investors.
A very conservative equity fund
Fidelity Canadian Large Cap Fund (Series B fund code: FID213(FE)) is one of the very conservative Canadian stock funds in our monthly Mutual Fund Planning Guide. This fund follows a value investing strategy with a portfolio that tends to focus on large, blue-chip stocks.
The fund holds a relatively high 16 per cent of its portfolio in cash, though this may change as its managers see opportunities in the market. Fidelity Canadian Large Cap also holds about 22 per cent of its portfolio in foreign stocks, and 10 per cent in foreign bonds.
Over 10 years, the fund has returned an average annual 10.5 per cent, ranking first out of 165 Canadian equity funds.
We recommend the Series B units of the fund, which have a front-end charge of anywhere up to five per cent. This fee is generally waived by discount brokers, and can be negotiated if you use an adviser. The management expense ratio (MER) is 2.28 per cent, versus 2.63 per cent for the average fund in the category. A minimum investment of $500 is required.
A conservative dividend and income equity fund
Dynamic Equity Income Fund (Fund codes: DYN029(FE), DYN729(DSC), DYN629(LL), DYN7013(LL2)) offers a similarly conservative portfolio. We include it among the Canadian dividend funds in our Mutual Fund Planning Guide.
This fund follows a value investing style seeking quality at a reasonable price. It is suitable for income investors.
Dynamic Equity Income has a 10-year compound annual growth rate of 7.9 per cent, ranking it eighth out of 108 Canadian dividend and income equity funds. The fund doesn’t boast equally high rankings over shorter periods, but it does tend to hold up well in market setbacks. For a low-volatility fund, we consider its returns highly attractive. Its MER (management expense ratio) is 2.14 per cent, and it requires an initial minimum investment of $500.
We recommend these two funds as excellent places to start your RRSP investing in equity mutual funds. They have conservative portfolios and low volatility—characteristics that should retain your confidence through good markets and bad. They charge relatively low fees, are convenient to buy, and require relatively low initial investments.
This is an edited version of an article that was originally published for subscribers in the January 20, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •3/6/17 •