RRSP season is almost over. And by now, many of us have already made our contributions for the 2011 tax year and invested this money accordingly. But if historical statistics are any guide, there are still many people who have either put off making a contribution to the last minute or who are unsure where to invest their RRSP contribution. If you fall into this group, and you want to put your money into something other than a money market fund, why not consider a balanced fund – a fund that holds both equity and fixed-income? Let’s take a look at some of the top Canadian balanced funds for RRSP investing.
Canadian balanced funds make up a large portion of Canadian mutual fund sales. The idea is simple: In a single fund, investors can get a balanced and diversified portfolio of Canadian equity and fixed-income assets. There are three different categories of Canadian balanced funds: Canadian Fixed Income Balanced; Canadian Neutral Balanced; and Canadian Equity Balanced. All of the funds in these categories must hold between 10% and 90% in equity securities, and at least 70% of total assets must be Canadian. Fixed Income Balanced funds can have up to 40% equity, Neutral Balanced funds have an equity allocation of between 40% and 60%, and the Equity Balanced funds hold more than 60% equity.
The category that is appropriate for you will depend on your risk tolerance as well as your age. For example, if you are nearing retirement and/or very risk adverse, you would probably lean towards a Fixed Income Balanced fund. Whereas, if you are younger and/or more willing to accept volatility, you would probably consider an Equity Balanced fund. If you are somewhere in the middle, a Neutral Balanced fund may be right for you.
To help get you started, here's a quick rundown on some of the top-performing funds in each of these categories.
Canadian Fixed Income Balanced
Steadyhand Income Fund is a relatively new fund, having been around just five years. Since inception it has earned an annual return of close to 6.3%. The fund is managed by Connor Clark & Lunn Investment Management and was awarded an Fundata FundGrade® A+™ Rating for 2011. The fund’s target asset mix is 75% bonds and 25% equity and income trusts. It is a no-load fund, and it’s 1% MER is one of the lowest available to retail investors. However, an initial investment of $10,000 is required.
Compass Conservative Portfolio is another top performer in the Canadian Fixed Income Balanced category. Managed by ATB Investment Management Inc., this 2011 A+ Grade winner debuted in 2002 and has an inception return of 4.7%. This fund of funds has a target equity allocation of between 10% and 24%, and the current mix is at the top end of this range. This fund also has no load, an MER of just 1.38%, and requires a minimum investment of only $1,000.
Canadian Neutral Balanced
Fidelity Monthly Income Fund has consistently been a top performer and is a FundGrade A+ Rating winner in 2011. Its 3- and 5-year compound returns of 16.2% and 5.0% (A Series, DSC) are among the best in the category. The fund debuted in 2001 and is managed by Pyramis Global Advisors LLC. It invests in other Fidelity mutual funds as well as directly in equity and fixed-income securities with a target asset mix of 50/50 equity and bonds. It is available in both front- and back-end load options and has an MER of 2.29 (DSC). The minimum investment is just $500.
CIBC Monthly Income Fund may be an alternative for those investors looking for a no load-option. The fund has earned a compound return of 7.5% since inception in 1998 and its 10-year compound return of 7% is has one of the highest in the Canadian Neutral Balanced category. The asset allocation is normally around 60% equity and 40% bonds. The MER is low for the category, at just 1.48%, and the minimum investment is only $500.
Canadian Equity Balanced
Norrep Income Growth Class has outperformed its peers over almost every time period. Managed by Alex Sasso and Keith Leslie, this FundGrade 2011 A+ Rating winner has earned 3- and 5-year compound returns of 24.7% and 9.4%, respectively. The fund invests mainly in dividend-paying equities but holds at least 10% of the portfolio in high yielding bonds. The long-term target allocation is 75%/25% bonds and equity. The fund is available in both front load and LSC options. It does, however, have a high MER of 3.29%, which includes a performance fee bonus, and may be subject to early redemption fees even with the FE option. Yet even with these higher-than-normal fees, this fund could be an attractive choice for investors with a little more appetite for risk and a longer investment time horizon.
Finally, for those investors looking for an exchange-traded fund (ETF) option in the Canadian balanced space, take a look at the iShares Diversified Monthly Income Fund (TSX: XTR). The ETF holds a diversified basket of other iShares ETFs. Its equity allocation sits at just over 70%, and it comes with an MER of just 0.55%. But keep in mind the management fees of the underlying ETFs are not included in this figure. The 5-year compound return is 6.7%. More impressively, over the past 12 months, a period in which many funds in the category suffered losses, XTR managed to gain 7.5%.
Brian Bridger, CFA, is Manager of Analytics and Data Operations at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.
Notes and Disclaimers
© 2012 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.