Sep 082015
 
Color Legend

IN THIS POST, click to jump ahead:

Why use RBC Mutual Funds?

My employer offers contribution matching up to 3% into a group RSP with RBC. Within it I am restricted to owning GICs and RBC mutual funds. If you’ve done any of your own research or read some of my other pages you know that I am not a fan of mutual funds. At first I thought I could just open my own RRSP elsewhere and contribute there, but in doing so I’d give up the 3% salary contribution match.

Second idea. What if I just transferred any contributions from my RBC account into my other RRSP biweekly as they came? Turns out RBC charges $50 to transfer funds, and it will take 2-4 weeks to transfer. Biweekly transfers would cost me $1200/year. Monthly transfers would cost $600/year. And that doesn’t include the opportunity cost of keeping that money out of the market for up to a month.

My RRSP has upwards of 38 years to appreciate(since I’m only 27 right now), so an annual or even bi-annual transfer is almost certainly in my future. The promise of even marginal gains(<0.5%) using ETFs or index funds will make a huge difference over time. In fact here is a quick calculation:

  • $10,000 at 10% compounded 38 years = $374,043
  • $10,000 at 9.8% compounded 38 years = $349,051
  • Difference in return = 0.2%. Difference in cash = $24,992

Compounding interest is a magical thing!

I can’t just let the money sit there and rot away until I accumulate enough to justify a $50 transfer. It’s time to take a close critical look at what my options are.

When I started this job I knew next to nothing about investing, and I just assumed some magical thing was happening when money went into my RRSP.

Turns out I was auto-investing in Guaranteed Investment Certificates (GIC), which DO have their place, but with 38 years ahead of me now is not the time to be conservative! The interest rate on these bad boys was a whopping 1.3%, and with inflation of 2% that’s a net loss of 0.7% per year! Compound inflation anyone?

Our group RSP also gives access to the world of RBC mutual funds, and shortly after realizing I needed to ditch the GICs I called RBC, filled out my risk profile, and they recommended putting my money into RBC Select Aggressive Growth, which I blindly did.

Fast forward to now and I thought I’d take a closer look at this fund. It has good allocation with 32.1% Canadian equity, 29.2% US equity, and 35.4% international equity. Good industry allocation with 25% in financials, and about 10% in the next top 4 (consumer products, IT, industrials, health care). Where it fails my criteria is a MER of 2.14%, and returns that don’t seem to be able to justify the high MER.

But alas, maybe it is the best fund for me at this time. There is only one way to find out. Data analysis and lots of assumptions on future performance!

The Analysis

I’m only reviewing the funds I can actually own in my RRSP, which is most of them on this page, excluding any USD funds. In total there are 88 funds on my list. I’ve summarized them all in an excel file which is where all the images on this page come from. You can download a copy for yourself here. I used the most up to date information they had, which ends July 31, 2015. I arbitrarily chose colours to differentiate between the types of funds according to the criteria below:

 

Color Legend

 

I’m mostly considering funds based on my own needs, and the best funds for you, dear reader, may be different. Right now I have this RRSP, a TFSA, and a non-registered account. To make the most of my tax efficiency I need to hold bonds, US, and international equity in my RRSP. If you have questions about investing tax efficiency I recommend checking out Freedom Thirty Five’s blog post or Canadian Couch Potato.

Lets get on with it then!


Total Return Since Inception – Ranked

Inception

Here are the top 25 funds ranked according to their total return since inception. The first thing you should notice is that the top 13 funds are all less than 3.5 years old. Anything born after 2008 hasn’t lived through a market crash, and actually has been riding the 5 year bull market after said crash. So it’s really only fair to consider funds that lived through at least 1 crash.

This leaves us with number 14 and beyond. In my opinion the best performing fund is #15, Canadian Dividend. It has managed to hold onto over 10% annualized return despite living through the 2002 and 2008 crash. A MER of 1.76% is high, but much lower than all the funds surrounding it. Except maybe the O’Shaughnessy Canadian Equity fund, but that fund returned 2.5% less than Canadian Dividend.

The other two funds that really catch my eye are #21 and #25. They have similar performance but 24 has a proven track record over the past 40 years. And remember that interest from bonds is taxed at your full income tax rate. Bonds are more conservative, but I’m not totally dismissing them just because I’m young.

Most appealing in this section:

  • RBF266 Canadian Dividend Fund
  • RBF270 Bond Fund
  • RBF497 Emerging Markets Bond Fund

Moving on!

 


5 Year Return – Bull Market Performance Ranked

5 yr

Lets see who took advantage of the recent bull market best. It’s pretty clear that Life Sciences and Technology won that race, those sectors have been booming recently. It’s too bad it has that MER of 2.20%. If only there was an ETF that could keep up… Arg I have too many ETFs on my mind. Damn you restricted group RSP!

Anyway the most interesting thing about this ranking is that the #2 spot goes to an index fund. Think about it, the fund that just sat and did nothing outperformed ALL of the actively managed funds except Life Science/tech. And not by a little bit, but by nearly 4% every year over 5 years! Checking the calendar returns shows that in the past 10 years, the index fund RBF557 outperformed the nearly identical equity mutual fund RBF263 in 8/10 years. I kept finding this trend over and over comparing RBC index funds to their mutual fund counterparts.

It’s clear that USA was the place to put your money over the past 5 years. All those purple global funds hold a large percentage in US stocks, which explains why they are also living large up top. The fund my money is currently riding on finally made an appearance in spot #19. It’s clear now that my money is better put elsewhere.

Most appealing this section:

  • RBF274 – Life Science and Technology Fund
  • RBF559 – US Index Fund

Year to Date Return – Ranked

YTD

To reiterate, this is from Jan 1st 2015 to July 31st 2015. Meaning it doesn’t include the massive losses we’ve seen in August. And a quick check reveals that life sciences has dropped to the #4 position. But look! Japan is leading this year! In fact international stock has topped out most of the US funds. Largely thanks to Japan because #24 there excludes Japan and look where it got them (24th place).

And good old Emerging Markets Bonds made it into the top 25! Since the August shenanigans it has only dropped about 1%, which is what normally occurs with bonds during market crashes.

Just for kicks I made this list up to 26 to include my old slacker friend Aggressive Growth. Not pictured is most of the complete portfolio funds falling between rank 26 and 47 (out of 88 funds total)

 


LIGHTNING ROUND – Various Top Fives

Mostly for fun, I’ll talk about some winners and losers in a few interesting categories.

 

Worst losses in the crash of 2008:

Worst Year

O’Shaughnessy, I am disappointed. You did make up for it in 2013 with a 43.1% gain in one year. However your compatriots made up for it in 2009 (and 2007?). The top 4 in this list also correspond to the worst returns of any fund in all 10 years.

 

Best gains in the crash of 2008:

Best 2008

Well there is no surprise here. Bonds are the way to save yourself in a market crash! Remember it and buy bonds!

 

Best gains in any one year:

Best Ever

Damn precious metals! 75% in one year? Well I don’t know about you guys, but I’m not sure I can stomach the -44% in 2013 even if I got back to back years of 65% returns.

Canadian equity income came out of nowhere on this one! And of course our good friend Life Sciences/Tech. The thing about Life/Tech is that for 3 years it did basically nothing, then lost 29% in 2008. After 4 years you are heavily in the red on this fund, do you realistically think you would have kept your money in what appeared to be a dying fund like that? And are these +20% gains sustainable? Or will it regress to the 2005-2007 earnings?

 

Most Popular

Popularity

Hey it’s Canadian Dividend and Bond Fund again! It seems other people have done a similar analysis to what I’ve done.

I am willing to bet that the reason there is so much yellow here is because RBC advisors recommend those most. Not that there’s anything wrong with any of these funds. For pure returns you can do better though based on everything that I’ve mentioned so far.

It’s interesting to see that the #5 spot goes to a fund started only 6 years ago, compared to the second youngest fund being 22 years old. I assume that there was a big demand for a “very conservative” fund after the 2008 crash. It has performed well so far with its worst year being +2.5%.

 

Other Awards

 

  • Highest MER: 2.58% RBF569 – Select Choices Aggressive Growth Portfolio
  • Lowest MER: 0.35% RBF447 – Premium Money Market Fund (The USD Money Market funds have a lower MER, but I can’t own them in my group RSP so they aren’t included)
  • Smallest Fund (AKA Least Popular) – US Mid-cap Equity Currency Neutral Fund (Inception date 2006, it’s not even new!)
  • Oldest Fund: April 1967 RBF269 -Canadian Equity Fund

 


The Verdict

Here are my top picks and why. These are NOT ranked, they are ordered according to their tracking number.

Verdict

Speaking for myself, I plan to hold all my Canadian equity in my taxable account, and most of my international and US equity in my TFSA. My RRSP is going to be home for bonds and some more US equity. I included the Canadian and international equity funds just in case you feel like creating your own “balanced portfolio solution” instead of using RBCs prepackaged ones. This way you could decide exactly how much of each sector you wanted to invest. A possible portfolio might be:

  • 10% Life Science and Technology
  • 20% U.S. Index
  • 20% Canadian dividend
  • 20% International Equity
  • 15% Bond
  • 15% Emerging Markets Bond

I hesitated including Canadian Dividend on this list because of how favorably dividends are taxed. Since the gains in your RRSP are all tax-free (sort of) you are better off keeping Canadian equity in a taxable account and saving tax-sheltered RRSP space for investments that are heavily taxed.

Ultimately it’s more important to get started investing than it is to find the “perfect” investment. If you only have one of the prepackaged portfolio funds you’ll be fine. If you want to stretch your RRSP as far as you can you should start customizing your investments. Remember that a 0.2% higher return can get you an extra $25,000!

 

Remember to do your own research

This is a good time to mention that what you have read here or anywhere on this website is for educational purposes only and does not constitute professional financial advice. Never blindly trust anyone with your money. Do your own research and accept the consequences of your actions. I am not responsible for any financial losses that may result from you acting on the information you received by using this site.

Once again, click the link below to download the file I used in my research (Don’t worry it’s clean). Or you can click here to be taken to the RBC webpage that should have the latest statistics on these funds.

RBC Mutual Fund Comparison excel file

If you found anything else worth mentioning about these funds I’d love to hear about it. Leave a comment below or send me a message.

Happy Investing!

UPDATE:

I’m changing three of my recommendations since I didn’t realize that I’m contradicting myself with the verdict above. I should follow my own advice and not buy funds with a high MER. Here are the replacements:

Replacements

I left in RBF274 and RBF497 because I feel they are a good way to increase the risk (and hopefully reward) in a young person’s portfolio. They come at the cost of a higher MER, but RBC doesn’t offer any low cost index funds in these sectors. Like I mentioned above, in some rare cases a high MER can be justified if it’s the only way to get those returns.

The four index funds are the same ones recommended by the Canadian Couch Potato.

Spam your friends:

  4 Responses to “ULTIMATE RBC MUTUAL FUND REVIEW”

  1. […] have them, or maybe your employer’s group RRSP only offers mutual funds like mine does with RBC. However you ended up with mutual funds, don’t use ignorance as an excuse to keep them. Do […]

     
  2. Thanks a lot for doing the spreadsheet! I was thinking of doing it myself, so you saved me a good number of hours!

    Just with the preliminary review of the funds that I was doing, I reached almost the same conclusions (recommendations) as you did.

     
  3. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

     

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