WHAT'S the ideal balanced fund for an RRSP?
It should be low-cost, conservatively managed, offer-steady, with stable performance, and consistently outpace its benchmark and peer group.
The RBC Monthly Income Fund is just such a paragon of perfection, having received the Fundata FundGrade A+ Rating for 2012. But, alas, it has not been available for registered plans since 2005. Are there any alternatives? Of course there are. I scoured the fund universe in search of a few options, and the following is a sample of what I found.
? BMO Monthly Income Fund
The objective of this fund is to provide investors with a consistent level of monthly income and capital preservation.
It invests in a mix of fixed-income and high-yielding equities, such as dividend-paying common shares and REITs. It pays investors a monthly distribution of $0.06 per unit, which works out to an annualized yield of nearly 10 per cent. While I largely like the fund, there is one concern. The distribution is unsustainable at the current level without significantly eroding capital. However, for those reinvesting distributions in a nonregistered account, this isn't as big a concern.
? Fidelity Monthly Income Fund
The fund, which just scored a Fundata FundGrade A+ Rating for 2012, aims for a mix of income and capital gains. To do this, the fund invests in a mix of fixed-income and high-yielding equity investments. Unlike the BMO or RBC offerings, this fund will invest outside of Canada. As of Nov. 30, more than a third of the fund was in global securities. It has also been the most volatile and the most expensive, with a 2.29 per cent MER. Despite the higher costs, returns have been strong, posting top-quartile performance for the past five years.
? Mawer Balanced Fund
The target asset mix of this high-quality offering from Calgary-based Mawer Investment Management is a fairly typical 60 per cent equity and 40 per cent fixed income. Unlike the other funds, which invest in individual securities, this is a fund-of-funds that invests in a mix of other Mawer funds. It will invest globally, and as of Dec. 31, held more than 35 per cent outside Canada. Despite this, volatility has largely been kept in check. The MER is very low, coming in at 0.98 per cent. And to top it off, the fund landed a Fundata FundGrade A+ Rating for 2012 as well. The biggest drawback to this fund is that the minimum investment is $5,000, which puts it out of reach for the smallest of investors.
Stuck on RBC? No problem. Just build your own RRSP-eligible replica RBC Monthly Income Fund with a similar risk-reward profile. A mix of 55 per cent RBC Bond Fund and 45 per cent RBC Canadian Dividend Fund should provide you a return that is comparable to the RBC Monthly Income Fund with similar volatility. The weighted average MER of the mix is 1.44 per cent, which is slightly higher than the MER of the RBC Monthly Income Fund.
Dave Paterson is a chartered financial analyst, and is the director of research for investment funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research on a variety of investment products.
This column is provided courtesy of Fund Library, owned and operated by Fundata Canada.
