[the-royal-mail]

I've been scrutinizing some of my bank's index funds and came across this one that looks pretty good, although the recent performance hasn't been great.

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=53242

I'm thinking I may lessen my exposure to precious metals and replace some of it with the above fund for a while.

Any comments/objections?

 

[HaroldCrump]

TRM, why do you want a bond fund?
Bond funds (index or otherwise) have several issues that we have discussed here in the past.
This is a particularly bad time to buy bonds, let alone bond funds.

Regarding this specific fund, the MER is rather high for an index fund.
On the positive side, > 60% of the holdings are short duration bonds, which is good when interest rates start rising.
But then, ~ 38% are mid term or long term bonds.

If you have to have bonds, consider XSB only.

 

[the-royal-mail]

Yeah I had the feeling there might be some skepticism. I appreciate the performance of the fund in question plus it has one of my bank's lowest MER's. Right now I'm paying 2.04% on a non-index fund that has lost 13% in the past 3 weeks. Just trying to find a possible alternate haven before I lose any more money.

 

[Belguy]

Re your precious metals fund--Buy LOW, Sell HIGH!!!

I wouldn't invest in any fund unless I was prepared to hold it long term.

Your example however, might illustrate why it is often better to invest in broad-based funds and to stay away from the often more volatile sector funds--unless you can stand to stay in the kitchen when it gets hot so to speak.

I am currently considering emerging markets bond ETF's and U.S. high yield bond ETF's for my fixed income allocation because they actually scare me less right now than do the more conservative bond offerings.

 

[larry81]

I am currently considering emerging markets bond ETF's and U.S. high yield bond ETF's for my fixed income allocation because they actually scare me less right now than do the more conservative bond offerings.

Can you provide more info regarding your sentiments toward high yields bonds vs. traditional bonds ?

 

[marina628]

I Just revamped my portfolio and did not buy a single bond funds in 2011.
I stayed loyal to my GIC Ladder which is 20% of my portfolio even though some I locked in for 3% on a 5 year rate.
This year I opted to put 10% of my portfolio in 5 Year special Market GIC ,I went with TD Financials GIC Plus and TD Utilities GIC Plus ,I figure these should get me more than my 3% on the other GIC I have.
I am holding on to my Precious Metals which is 10% of my portfolio ,Keeping 40% of my portfolio in Canadian Equities ,I have 10% in Global Equity and final 10% of my portfolio is in Dividend paying stocks.
My plan for 2011 is to purchase more Dividend stocks ,as for the Precious Metals Funds ,these have always done well and I am comfortable to hold on to mine long term as I have done in the past.

 

[MikeT]

Selling gold and buying bonds is going from the frying pan into the fire.

 

[Four Pillars]

Yeah I had the feeling there might be some skepticism. I appreciate the performance of the fund in question plus it has one of my bank's lowest MER's. Right now I'm paying 2.04% on a non-index fund that has lost 13% in the past 3 weeks. Just trying to find a possible alternate haven before I lose any more money.

The problem is that you are chasing returns. Picking funds based on past performance is not a good way to invest.

 

[HaroldCrump]

Yeah I had the feeling there might be some skepticism. I appreciate the performance of the fund in question plus it has one of my bank's lowest MER's. Right now I'm paying 2.04% on a non-index fund that has lost 13% in the past 3 weeks.

You are complaining about a 3 week losing streak?
Precious metals is a volatile sector - there will be losses and gains.
You have to have the guts to stick through thick and thin.
Also, recognize that you entered this sector after a sustained period of gains.
It is possible (actually, likely IMO) that metals will keep going higher.
But you have to tolerate the swings.

If this is more volatality than you can take and need an alternative, a bond fund is not that alternative.
Even though you say the MER is lower than other RBC funds, it is still too high for what the fund does and how it is expected to perform over the next couple of years.
You can't pick funds purely on the basis of MERs.

For lower volatality and stable returns, consider an equity-based monthly income fund or a dividend income fund instead of the bond fund.
All big banks have pretty good equity based monthly income funds, and I'm sure they mirror each other's holdings, performance and fees.
I'm with the TD one and it has served me well so far.
Consider the RBC equivalent.
MER should be between 1.25% - 1.5% no more.
Majority holdings should be dividend paying Canadian corporations, some pref. shares, some trusts/REIT and a very small % of bonds and cash.

As long as the TSX keeps going higher you will have some capital gains as well.
The dividends and distributions will give stability and income.

 

[bltman]

Actually the MER on this particular RBC fund is comparitively low for an Index bond mutual fund. It is high when compared to ETFs but this is not an ETF.

The problem with this RBC bond index fund is that it traces a government bond index so all its investments are in government bonds only. The other Bond index mutual funds are based on a broader index that includes a mix of government and corporate bonds leading to better returns.

 

[the-royal-mail]

Alright Harold, how about RBC Canadian Dividend and RBC Canadian Equity Income?

But they have high MERs. 1.75 and 2%.

As for the gold, it's not so much about the 3 weeks as it is how much has been lost in that period.

 

[MikeT]

What percentage of your portfolio is in precious metals? Maybe your allocation is just too high.

 

[the-royal-mail]

Hi Mike, no doubt. I should probably just reduce the allocation. I don't intend to sell all of it, thinking maybe a 10% target would be ideal. I just need to figure out which RBC funds to buy in place of a lower precious metals target.

 

[HaroldCrump]

Alright Harold, how about RBC Canadian Dividend and RBC Canadian Equity Income?

But they have high MERs. 1.75 and 2%.

You could do either, and yes the MERs are way too high for what they are doing.
The dividend fund is another ho-hum dividend fund and there is no reason to charge 1.75%.
The Equity Income is a fancier version of the dividend fund, comprising of higher yielding trusts and corporations.
Which is why the MER is 2% perhaps.

Consider the RBC Monthly Income Fund, though.
It has a much lower fee at 1.14%.
Volatality factor is a lot lower than the other 2, which is your goal.
Returns are lower as well, but IMO 7.6% over almost 15 years is pretty good for a fund of this type.
It has bond holdings though.

It will all depend on what your current and target asset allocation is.
If you are already heavily invested in Canadian dividend stocks/funds, then these will overweigh you.
But if you have no/limited exposure, then consider the monthly income funds.

As for the gold, it's not so much about the 3 weeks as it is how much has been lost in that period.

Metals is a volatile sector.
IMO, this is only a temporary correction and it will come back up again.
But you have bought close to recent highs, so you will be up against resistence levels for the next little while.
Maybe your weighting was too high in this sector fund.

 

[funinagg]

Alright Harold, how about RBC Canadian Dividend and RBC Canadian Equity Income?

But they have high MERs. 1.75 and 2%.

If you start with $10,000+ then MER for D series version of these funds is about 1%.

 

[the-royal-mail]

Thanks Harold. I've got Canadian Index already, which I am satisfied with but am certainly in favour of other CDN items as their performance seems to outweigh the others (US, int'l etc).

 

[MikeT]

Trying to chase performance again? Haven't you learned your lesson?

Even chasing performance, the us market has beat the Canadian market over the last 6 months, even taking into account hedging currency (just using ishares performance numbers).

 

[the-royal-mail]

Why would I want to put my money in something with a track record of poor returns? I did that for 10 years and got exactly that. Poor returns.

 

[Four Pillars]

Why would I want to put my money in something with a track record of poor returns? I did that for 10 years and got exactly that. Poor returns.

Have you done any reading on how to invest? Books like Four Pillars of Investing or Random Walk Down Wall Street would probably do wonders for you, even if you want to be an active investor.

 

[MikeT]

Doesn't matter at all where an investment has been, it only matters where it's going! And stocks are going higher higher higher, and gold is going lower lower lower!!!

Just my own opinion, some disagree and I know that. But time will tell.

More important though is the principle that chasing performance is not a great way to invest.