Best mutual funds 2016

Power your RRSP with the best mutual funds, based on performance, price and safety. Our picks regularly outperform

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by

From the February/March 2016 issue of the magazine.

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It’s been a tumultuous year for many investors. As the bear market for commodities continues to take its toll, equity markets that are heavily dependent on commodities, including Canada’s, have continued to suffer. However, long-term investors who chose to invest in our Honour Roll funds, at least for part of their portfolio, have generally fared better than the rest. More than 70% of last year’s Honour Roll has delivered superior returns versus their peers.

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That is not to say Honour Roll funds are only good for bad years. Over the past 15 years MoneySense has been rating Canada’s best mutual funds, roughly a similar percentage of Honour Roll funds have out-performed their peers. If you stick to our methodology, you could have a very good chance of staying ahead over the life of your investments. That’s a claim no other mutual fund ranking in Canada can make.

Five year success rate

The percentage of past fund picks that went on to perform above their category average over five years:

Five year success rate

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How the funds are chosen

Because I don’t like losses, my number one investing rule is “keep your principal safe.”  It’s why my selection methodology excludes funds with very high volatility as well as funds that perform poorly in down markets. I also exclude funds with another major impediment to long-term performance: high investment cost. Otherwise, our Honour Roll funds meet strict criteria for consistent above-average performance and value added from active portfolio management, which I measure using risk-adjusted return. This year, I had to raise the minimum consistency requirement to 60% (versus above 50% for other categories) for Canadian equity funds in order to reduce the Honour Roll funds to a manageable number. As a result, the selected 17 funds in that category all have unusually high consistency of returns. In the tables that follow, you’ll find the best-performing funds in their respective categories. We’ve also include ratings for risk and cost, so you can pick the funds that are the best fit for your portfolio.

What lies ahead?

In a nutshell? Market divergence. While commodity-dependent economies, such as Canada, Australia and some emerging countries, will remain in the penalty box throughout 2016, several high-income countries, like the U.S. and most of Europe will fare better, but only in relative terms.

Against this backdrop, you have one choice: Stay the course. The science of market prediction is as reliable as astrology. Rather than fear what is to come, remember that market fluctuations are a fact of life.

This all underscores the importance of remaining diversified. Yes, you can continue to expect weakness in Canadian equities and the Canadian dollar, but every cycle invariably works itself out. Weak prices will push high-cost producers out of business and shrinking supplies will bring balance to commodity prices. It could happen later this year, or the next, but it will happen.

For those reasons, it is important to avoid big bets. This year’s model portfolios (see “Best bets for your RRSPs“), which I prepare each year, help you achieve optimal diversification among asset classes, sectors and geographies. I continue to exclude bond funds from the Honour Rolls. Canadian bond yields have dropped to extremely low levels such that most managed funds would post flat or negative results after subtracting management fees. Therefore, rather than investing in a managed bond fund, you are better off filling the bond component of your portfolio with a cheap index bond fund or ETF.

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11 comments on “Best mutual funds 2016

  1. After publishing tables showing Mawer funds with superior performance all over the globe, slagging balanced funds for excessive fees, the balanced ones shown are Canada only, not globally neutral and overly expensive. Neither Mawer’s Balanced with an mer of under one percent and 20 years of top quartile performance, nor Steadyhand’s Founders fund rate a mention though the returns versus the Canada only are massively superior. Another failure in an article intended to cover the field.

    Reply

    • Davie215 :
      which mutual funds or ETF’s would you recommend at this time? I have all RIf and my wife’s RRSP in cash now and am looking to buy now. any comments appreciated

      Reply

      • Hi Peterdd,

        I have no investment advisor qualifications, but took over our own gradually, starting in late 2009. We used ETFs, with both broad market and dividend-focus with satisfaction through 2014, but have lately emphasized ETFs identified low volatility for Canada, USA, and International. BMO and iShares have several that are popular.

        A huge element of our investments is with the Mawer Balanced Fund, with MER 0.96%, paying no trailer fees. It’s about 20/20/20 or globally neutral in the equities, 31% bonds and 10% cash. Performance in top quartile over any period in last 25 years, and really is a blend of existing Mawer funds, and this issue of the magazine rates several of the components highly.

        What has been of benefit to our returns is this divvying up of the equities globally, and the Couch Potato portfolios offer several choices depending on your appetite for equities. Investing with a TD DI brokerage account gives you the same four elements (equities + bonds) at a fraction of mutual fund costs — almost ETF levels, and you can mix and match regions, and rebalance without paying commissions.

        Big fan of Dan Bortolotti and his index investing approach, and you can also consider the Orange mutual funds, which are also low fee index

        I’m leaning to continue more towards the low-volatility side, broad index ETFs, Mawer, but big importance to me is to spread the equities around the world, and minimize the fees.

        This article endorsed many individual funds, but then completely spoiled it by listing only Canadian balanced funds, without any foreign content whatsoever — the point of my original comment.

        Good luck and keep reading MoneySense (unsolicited praise with no payola involved!)

        Reply

  2. Why do you send me these emails and then not allow me to read the subject matter of the email when I click on to it. You state that I have not subscribed to the internet version, just the paper back copy. I suppose you want me to subscribe to the internet version as well as the paper issue. That is what I originally did subscribe to, but it was not compatible with my windows 8 P.C. When I contacted Money Sense for help, the adviser told me that your online version is only compatible with tablets, which I do not own.Just a laptop with windows 8..So Ido not se the sense in sending me emails on subjects that you do not allow me to open.
    Thank you, J.P.

    Reply

    • Hi John,
      If you have subscribed to MoneySense magazine you can absolutely access exclusive content like the Best Mutual Funds Honour Roll online. Make sure you have created a web profile for yourself on our website for free. Be sure to include your subscription number. Once you are signed in online, you can read unlimited articles. http://www.moneysense.ca/signin/?action=register. I hope this helps. Thanks for subscribing and sorry for the inconvenience.
      Thanks!

      Reply

  3. This article endorsed many individual funds, but then completely spoiled it by listing only Canadian balanced funds, without any foreign content whatsoever — the point of my original comment.

    Good luck and keep reading MoneySense (unsolicited praise with no payola involved!)

    Reply

  4. “Over the past 15 years MoneySense has been rating Canada’s best mutual funds, roughly a similar percentage of Honour Roll funds have out-performed their peers. If you stick to our methodology, you could have a very good chance of staying ahead over the life of your investments. That’s a claim no other mutual fund ranking in Canada can make”

    Have you considering having your claims subject to independent review? Would also be helpful to see how the couch potato portfolios / passive alternatives fared relative to your picks – very relevant and interesting for your readers I would think.

    Reply

  5. Moneysense — you are idiots!!! I paid my money, I can’t get in. There is no $%^&*( way to get help. Smooth out your online systems if you expect to sell subscriptions. In the mean time — offer human help!!!!

    Reply

    • Hi there, To gain access to the Best Mutual Funds ranking, please go to the following link and add your subscriber number to your web profile. http://www.moneysense.ca/signin/?action=register. This way, once you are signed in online, you can read unlimited articles. Sorry for the inconvenience. Let me know if you encounter any issues. Thanks.

      Reply

  6. i have been a moneysense magazine subscriber for many years and have enjoyed the many informative articles, investment advices throughout the years. Unfortunately, i can’t say the same for navigating your website to view my subscription online as moneysense advertises. I can’t say how many hours i have spent just trying to read my content online. DISAPPOINTING AND TOTAL FAILURE. i will be invoicing moneysense for wasting my time!

    Reply

    • Hi there, I’m sorry to hear you’re having difficulties accessing content on moneysense.ca. Could you please elaborate on the issues you’re having and I’ll try to help! Thanks!

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