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Pros pick top RRSP bank funds

Many investors will go to financial institutions to put money in their plans at the last minute, SHIRLEY WON writes


Hari Kant has an annual RRSP ritual. For the past four years, he has waited until the end of February before making a beeline to his bank branch to stash some cash into his registered retirement savings plan.

The 32-year-old Toronto-based software engineer says he expects to do the same again next week before the March 1 deadline.

"I run into the bank, and usually I haven't saved up enough money for my RRSP so I go in and also get an RRSP loan," says Mr. Kant, who can contribute up to $13,500 to his RRSP. "I then purchase the mutual funds with that loan, and pay it off over the course of the year."

Welcome to the last-minute rush. Many investors will be heading to their banks next week to make an RRSP contribution to get their tax breaks. The trend is noticeable in the flows of money into banks' no-load mutual funds.

"About 20 to 25 per cent of RRSP fund sales come in the last week," says Paul Butler, senior manager at the mutual fund arm of Royal Bank of Canada.

"It might be more prudent to establish a monthly savings plan in advance, and get the compounding. . . . But I think that we are a society that in general tends to procrastinate, and RRSPs are no different."

If you are making a last-minute RRSP contribution at your bank, you can always opt for a money market fund and decide where to invest it later.

To help you make up your mind, we asked four analysts to suggest one Canadian stock, foreign stock, Canadian balanced and Canadian bond fund they like. When the votes were tallied, TD Canadian Bond run by lead manager Satish Rai emerged as the most popular fund with three votes. Here are their choices:
James Gauthier
Fund analyst Corp.

Mr. Gauthier suggests BMO Dividend run by Michael Stanley for a Canadian stock fund choice even though it is classified as a Canadian dividend fund. The fund's main goal is capital gains because it invests in common stocks as opposed to preferred shares and income trusts, he says. The fund has been a top-quartile performer in four of the seven calendar years of its existence, he adds.

Among foreign stock funds, he likes Royal Bank's O'Shaughnessy U.S. Growth run by James O'Shaughnessy, author of What Works on Wall Street. Mr. Gauthier likes the manager's quantitative stock-picking approach that uses criteria such as low price-to-sales ratios and positive earnings growth. The fund has been in the top quartile from calendar 1999 to 2001.

Mr. Gauthier recommends TD Balanced Growth among Canadian balanced offerings. The fund, run by money manager McLean Budden Ltd., is "generally very conservative," and has been a first- or second-quartile performer in the past seven calendar years, he adds.

Among Canadian bond funds, he likes TD Canadian Bond run by Mr. Rai. The fund has more than 60 per cent in quality corporate bonds -- which provides extra yield in a low-interest-rate environment -- but the managers also do their own research and don't rely on corporate credit ratings, he adds.
Stephen Kangas

Mr. Kangas also favours BMO Dividend for his Canadian stock fund pick. The fund has fared better than its pure stock fund peers but with less risk. In 2001, BMO Dividend posted a 2.5-per-cent return, compared with a 4.2-per-cent loss for the average Canadian equity fund.

Among foreign stock funds, he suggests Bank of Nova Scotia's Capital U.S. Large Companies run by Los Angeles-based Capital Guardian Trust Co. (This fund invests in units of Capital International-U.S. Equity Fund sold in the United States). Mr. Kangas says the fund has a short-term record in Canada, but his choice is based on the reputation of the manager's parent Capital Group of Cos., a major U.S. money manager.

Mr. Kangas likes BMO Asset Allocation among Canadian balanced offerings, saying he likes the stock-picking ability of Michael Stanley -- who runs BMO Dividend -- while Mary Jane Yule, who runs the fixed-income side, is a "solid bond manager." The fund has been a first- or second-quartile performer over the past three calendar years, he says.

Among Canadian bond funds, he favours TD Canadian Bond because of the track record of Mr. Rai and its management expense ratio of 1 per cent. (The MER is the total of management and other expenses charged to the fund.)

He said the fund is a consistent above-average performer, ranking in the first quartile from calendar 1995 to 2000 and second quartile in calendar 2001.
Dan Hallett
Sterling Mutuals Inc.

Mr. Hallett recommends Royal Canadian Value run by Ina Van Berkel among Canadian stock funds.

He favours the fund's investment strategy, which is a blend of value and growth; its low stock turnover, and its low MER of 2.15 per cent. Among foreign stock funds, he favours TD Global Select run by British-based Perpetual Portfolio Management Ltd. He says the team's global managers have "put up some decent performance numbers over the years," and the fund's MER of 2.52 per cent is below the 2.75 per cent average for its category.

Among Canadian balanced funds, he likesBMO Asset Allocation because of Mr. Stanley's stock-picking ability for the equity portion, and the fund's low MER of 2.09 per cent.

Mr. Hallett also favours TD Canadian Bond among Canadian bond offerings, saying he is a fan of Mr. Rai and likes the fund's low MER.
Peter Brewster
The Canadian Mutual Fund
Adviser newsletter

He likes Royal Bank's O'Shaughnessy Canadian Equity among Canadian stock funds.

He likes the fund's quantitative strategy that focuses on investing half of the fund in growth and half in value stocks.

The fund is retooled at year-end to make sure it has the best companies that fit his criteria, he says.

Among foreign stock funds, he favours O'Shaughnessy U.S. Growth because growth stocks are poised to rebound as the North American economy recovers. Investors might also consider holding O'Shaughnessy U.S. Value to get a blended value and growth approach that is offered in O'Shaughnessy Canadian Equity Fund, he adds.

Mr. Brewster recommends TD Balanced Growth among Canadian balanced offerings because it is conservatively invested in large-capitalization stocks, and has a low MER of 2.16 per cent.

Among Canadian bond funds, he suggests TD Canadian Bond Index, saying it has been an above-average performer over the past four years in terms of compounded returns and calendar-year returns. Mr. Brewster also likes the fund's low management expense ratio of 0.89 per cent.

Funds the experts like 

Period ended Jan. 31, 2002


Fund name                      1-year  2-year  3-year  5-year  10-year

Canadian stock funds 

BMO Dividend....................+5.4%..+18.8%..+13.3%..+14.9%....--

O'Shaughnessy Canadian Equity   +8.8   +13.3   +14.8      --      --

Royal Canadian Value            -1.9    +8.0    +9.3      --      --
Foreign stock funds 

Captial U.S. Large Companies....-5.1%.....--.......--.......--......--

O'Shaughnessy U.S. Growth      +10.6    +6.2   +15.1      --      --

TD Global Select               -19.7   -12.1    -1.8    +4.9     --
Canadian balanced funds 

BMO Asset Allocation............-1.8%...+3.7%...+6.4%...+6.6%..+7.7%

TD Balanced Growth              -2.1    +6.3    +6.7    +8.0   +9.1
Canadian bond funds 

TD Canadian Bond................+6.1%...+9.0%...+5.5%...+7.4%..+8.9%

TD Canadian Bond Index          +6.4    +8.6    +4.6      --      --

© 2007 The Globe and Mail. All rights reserved.

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