What to do about mutual funds now

Mining stocks and oil and gas stocks have compelling valuations right now which makes a specialty fund such as RBC Global Resources attractive. If you’d rather track a broad index, then exchange-traded funds or index mutual funds may be better for you. TD Bank’s e-Series offerings remain our favourite index mutual funds.

There’s a case to made for investing in resource stocks right now. Oil and gas stocks, for instance, have compelling valuations and do not reflect a recovery in oil prices should this occur. Then too, mining stocks also have compelling valuations and could benefit from a pick up in inflation as the global economy gains momentum. For mutual funds investors, that makes a specialty fund such as RBC Global Resources an attractive selection now.

In spite of the possibility that resource stocks may drive the next period of Canadian stock-market strength, we still recommend a balanced and diversified portfolio.

Even if you have several years to retirement, make sure your equity portfolio holds some conservative, diversified Canadian equity funds if mutual funds are your preferred investment vehicle. We especially like Beutel Goodman Canadian Equity and Mawer Canadian Equity Fund if you want mostly growth. Dynamic Equity Income and Scotia Canadian Dividend are good choices for income investors.

ETFs versus index funds

If you prefer your equity funds to track a market index rather than have them actively managed by a portfolio advisor, exchange traded funds, or ETFs, are probably your best choice. ETFs generally have lower expenses than do index funds offered by mutual fund companies.

But the problem with ETFs is that you have to pay brokerage commissions when you buy and sell them, so you’ll have to invest relatively large sums of money to compensate for this expense.

If you’re not in the position to deploy larger sums of money, however, you might want to consider an index mutual fund instead. Lots of these funds make is easy for you to invest small sums. What’s more, some offer competitive management expense ratios, or MERs, though not as competitive as those you find with ETFs.

TD Bank’s e-Series offerings remain our favourite index mutual funds. That’s because they have the lowest expenses we know of among such products.

Take TD Canadian Index-e Fund (Fund code: TDB900 (NL)), for example. Its MER is 0.33 per cent. While considerably higher than than the iShares S&P/TSX Capped Composite Index ETF’s MER of 0.06 per cent, this MER is well below those of other index funds offered by the big banks. CIBC Canadian Index Fund, for instance, has an MER of 1.14 per cent.

TD e-Series funds are only available online through the bank’s website. That’s what lets the bank keep their MERs low.

This is an edited version of an article that was originally published for subscribers in the August 18, 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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