Based on early indications, the current RRSP season is shaping up to be a whopper. Advisors are reporting that after a few years of strong stock market performance, both in Canada and internationally, clients are eager to put money to work in equities-related holdings within self-directed RRSPs. Banks and mutual fund companies are seeing strong RRSP season sales, with some reporting a record-breaking month in January.
\u201cInvestors are in a positive mood and are less fearful than in the past,\u201d says Bev Moir, a financial advisor with ScotiaMcLeod Inc. <\/b> in Toronto. \u201cAfter reaping some gains in Canadian stocks, people are perceiving that there are also opportunities in foreign markets. There\u2019s a high level of enthusiasm, and they seem happy about making their RRSP contributions. Some are even taking the initiative to make a contribution for both the 2006 and the 2007 tax years.\u201d
Foreign diversification is a strong theme for many investors this year. With the foreign-content limit no longer restricting the ability to roam globally within registered plans, advisors and their clients are heeding the wisdom of diversification and adding a little more weight to the foreign component of their portfolios. Toronto-based AGF Funds Inc. <\/b>, which reported the highest monthly gross sales and second-highest net sales in January in the 50-year history of the company, says increased sales of international funds accounted for most of this improvement. Net sales of AGF\u2019s international equity funds in January were $168.1 million, compared with net redemptions of $82 million a year earlier.
\u201cThere is strong momentum in fund sales this year, and we are hearing that from the advisors we talk to as well as experiencing it directly at AGF,\u201d says Rose Cammareri, the company\u2019s national sales advisor. \u201cInvestors are looking beyond the previously popular income trusts and fixed-income vehicles to growth-oriented equities. They are also realizing there are opportunities in emerging markets.\u201d
Emerging markets have been hot performers in the past year, particularly China and India. According to Morningstar Canada, Excel China Fund<\/b>\u2019s eye-popping one-year return of 83% in 2006 made it the second-best performer among about 5,400 funds with one-year returns. Excel Funds Management Inc. <\/b> of Mississauga, Ont., which offers funds focusing on China and India, has been a beneficiary of the rising perception that a global shift in power is taking place in favour of these two regions and their combined populations of more than 2.4 billion people. Excel enjoyed net sales in January 2007 of $72.6 million, up sharply from $15.6 million in January 2006. Assets under management of $441 million as of Jan. 31 rose a robust 200% for the year.
Although Excel\u2019s funds have been available for nine years, the company takes the time to develop a performance record and for investors to gain confidence that the maturing of emerging markets is a lasting trend, says Excel\u2019s president, New Delhi-born Bhim Asdhir. He recently returned from a trip to India and says there have been massive changes even in the two years since he was last there.
\u201cThere are all kinds of new retail malls under construction, there are more cars, roads are better and electrical power is more reliable,\u201d Asdhir says. \u201cYoung people are busy taking advantage of opportunities in every field. Indian stock prices may be high now, but I think the next five to 10 years will see huge growth in profits. It\u2019s just the beginning for India.\u201d
Wrap programs or customized portfolios containing a package of funds are also gaining popularity. Cammareri reports that AGF\u2019s Harmony and Elements wrap portfolios are big sellers, and Elements has garnered $1.3 billion in AUM since it was launched a little more than a year ago. With minimum investments of $5,000, Elements fund wraps are well suited to small investors.
\u201cThe portfolios allow inves-tors to get fixed-income, equities, Canadian and global exposure with just one decision,\u201d Cammareri says. \u201cThere\u2019s built-in diversification across asset classes and regular rebalancing.\u201d
PRE-PACKAGED WRAPS<\/b>
Dave Richardson, vice president of communications and sales at Toronto-based Royal Bank Asset Management Inc. <\/b>, says pre-packaged wraps have been driving sales to record levels at the bank-owned fund group. Royal Bank had its best January to date, with net sales of $811 million in long-term funds (excluding money market funds), up 18% from the comparable month a year earlier. More than half of these sales were in fund wraps.
@page_break@\u201cThe pre-packaged portfolio solutions take a lot of the worry out of investing,\u201d Richardson says. \u201cThe built-in diversification and automatic rebalancing tend to stop individuals from doing things that are not in their long-term interest, such as buying high and selling low. The portfolios have also given investors exposure to markets outside Canada, something many individuals buying on their own have neglected in the past few years.\u201d
Adrian Mastracci, private-client portfolio manager at KCM Wealth Management Inc. <\/b> in Vancouver, is a strong believer in determining the appropriate asset mix for every client and sticking to it religiously. Because of recent strength in equities markets, he\u2019s guiding many clients to bolster the fixed-income components of their portfolios this season to keep their asset mixes in balance, and some are even taking some profits off the table in the equities portion of their portfolios.
\u201cIt\u2019s always important to rebalance the ship, and look at where the portfolio is now compared with where it should be,\u201d Mastracci says. \u201cInstead of blindly buying what\u2019s been going up, investors need to look at their customized target asset allocations. If they haven\u2019t put money in their RRSPs for a year, they are probably a bit light on fixed-income and need to take the right medicine.\u201d
Labour-sponsored investment funds have lost a lot of their lustre because of disappointing performance, and advisors say there is little investor interest in them. Once they\u2019ve enjoyed the tax credits from the initial purchase, many investors find they must endure disappointing returns for the eight years or so that they are locked into the funds.
\u201cLSIFs have not performed as expected,\u201d says Tony De Thomasis, president of De Thomas Financial Corp. <\/b> in Thornhill, Ont. \u201cThe tax advantages typically do not compensate for the inferior returns. In most cases, investors would be better off with an investment earning 8% and no tax credits.\u201d
De Thomasis would rather see his clients diversify by putting 5% of assets in emerging markets and 5% in global real estate funds, which offer asset class diversification and protection against inflation. Other advisors report that there is an interest in gold funds, primarily as a hedge against potential weakness in the U.S. dollar.
Although income trusts stumbled after last fall\u2019s announcement of impending tax changes and many investors have lost their taste for them, some advisors are finding selective buying opportunities for clients in those trusts that are well-run businesses with growth potential.
\u201cEven if they become taxable, there are some attractive yield situations in well-chosen trusts, and they can still be a nice component in a well-diversified income portfolio,\u201d says Bryan Snelson, a financial advisor with Raymond James Ltd. <\/b> in Toronto.
Sterling Rempel, a certified financial planner and owner of Future Values Estate & Financial Planning<\/b> in Calgary, says the strong returns in equities markets are stimulating interest in borrowing activity for both registered and non-registered plans.
\u201cRising interest in investment loans usually happens after a sustained period of rising markets,\u201d he says, \u201cand often bears a note of caution.\u201d \tIE<\/b>
<\/p>\n","protected":false},"excerpt":{"rendered":"
Based on early indications, the current RRSP season is shaping up to be a whopper. Advisors are reporting that after a few years of strong stock market performance, both in Canada and internationally, clients are eager to put money to work in equities-related holdings within self-directed RRSPs. Banks and mutual fund companies are seeing strong […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3013,3021],"tags":[],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/328358"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=328358"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/328358\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=328358"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=328358"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=328358"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=328358"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}