Three funds to get your new RRSP started

If you’re like many people, you’ve rushed into your bank near the end of February and put as much as you could manage into an 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 2013′s 9.6-per cent gain in the Canadian stock market, and similar gains by many Canadian equity funds, it was relatively easy to jump into mutual funds in February 2014. That’s exactly what many people did. But though the Canadian market gained another seven per cent in 2014, increased volatility toward the end of the year and in early 2015 may have many investors questioning whether they made the right move.

In fact, many may have now decided to get out of funds, accepting their losses if they invested late in the year, including hefty deferred sales charges, and settling for GICs. Problem with this move is that GICs yield very little these days.

We think, however, that if these same investors pause and approach the mutual-funds market with more care, they might find themselves taking the first step along the way to a rewarding investment program.

Because market volatility can be unsettling to many new investors, we’ve picked three conservative, stable equity funds. But these funds still exhibit better-than-average long-term records of growth, plus other features especially attractive for new investors.

Mawer Canadian Equity Fund (Fund code: MAW106 (NL)) is one of the Very Conservative Canadian equity funds in our monthly Planning Guide. This fund offers a portfolio of mostly larger-capitalization Canadian equities, below-average volatility and low expenses.

The fund currently holds just four per cent of its portfolio in cash. Its largest sector weighting is financials, which account for about 37 per cent of the portfolio. Just 18 per cent is held in resource stocks, making this fund less sensitive than many of its peers to tumbling commodity prices.

Over 10 years, the fund has returned an average annual 10.2 per cent, ranking in the top quartile of all Canadian equity funds, and outperforming the S&P/TSX Composite Index’s 7.6-per-cent return.

The fund has no sales commission nor deferred charge, and a management expense ratio, or MER, of just 1.18 per cent. It does, however, require a minimum investment of $5,000. You can invest in this fund through a mutual-fund dealer or directly with the company if you live in Alberta, Saskatchewan, B.C., Manitoba or Ontario. However, since the company pays no trailing commissions on its Series A units, some dealers may not offer the fund, or, if they do, may levy a commission to sell its units.

RBC Canadian Dividend Fund (Fund code: RBF266 (NL)) offers a similarly conservative portfolio, with similar volatility to that of Mawer Canadian Equity. It belongs to the Canadian Dividend Funds category of our Planning Guide.

RBC Canadian Dividend Fund has a 10-year compound annual growth rate of 7.8 per cent, ranking in the top quartile of all Canadian dividend and income-equity funds. Its five-year return has averaged 9.7 per cent, also ranking in the top quartile of the category. For a low-volatility fund, we consider these highly attractive returns.

This fund is also a no-load offering, and keeps its MER low at 1.76 per cent. You can invest in the fund at any branch of the Royal Bank, of course, making it one of the most convenient funds available in Canada. You’ll have to make a minimum investment of $500.

We include Mackenzie Ivy Foreign Equity Fund (Fund code: MFC081 (FE), MFC611 (BE), MFC (7017)) in the Foreign Stock funds section of our Planning Guide. It, too, has a conservative approach to the stock market. It’s suitable for new investors, as its portfolio is characterized mainly by very blue-chip global companies such as Danone SA from France, world leader in the food industry; and United Parcel Service, the largest express carrier and package delivery company in the world.

The fund is about as volatile as the others discussed above. And it’s also posted relatively high long-term returns. Its 10-year compound annual growth rate of 6.4 per cent ranks in the top quartile of all global equity funds.

The fund carries front-end, back-end and low-load sales charges. Its MER is 2.56 per cent, and the minimum investment is $500. Mackenzie funds are widely available.

We recommend these three funds as excellent places to start your RRSP investing in equity mutual funds. They all have conservative portfolios and low volatility — characteristics that should retain your confidence through good markets and bad.

 

Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846