RRSP fund picks
Canadian funds to consider for your RRSP

It's that time of year again. Christmas bills are paid and tax time is approaching. But wait - how much of a RRSP contribution will it take to drop your tax bill to nil (or give you a refund)? That's precisely the question many ask this time of year. And, unfortunately, many procrastinate - both on the contribution and where it will be invested. The recommendations that follow are a mix of load and no-load funds. Your final decision will largely depend on whether or not you engage the services of a financial advisor. With that in mind, here are a few ideas for good Canadian funds to consider for this year's RRSP contribution.

Canadian stock funds

If you look at stock indexes, Canada looks almost as expensive as our American neighbours. With a lean dividend yield hovering around 2 per cent and a median price-to-earnings (P/E) ratio in the mid-20s; our stock index (the S&P/TSX Composite) remains expensive.

If you've read this column for any length of time, you'll know that I have a personal bias toward money managers with a high level of sensitivity to the price they pay for stocks - i.e. value managers. Hence, here are a few ideas if you're looking for a Canadian stock fund this year.

CI Canadian Investment is a top-notch fund managed by the talented and insightful Kim Shannon. Consistent performance, low turnover, and a very disciplined process make this a great choice as a core holding.

Mawer Canadian Equity is another of my favourites. Managed by Jim Hall of Mawer Investment Management in Calgary, this 30-stock portfolio holds no foreign content and little cash. Hall nicely blends his desire for growing companies with his intolerance for high prices. And he's not just looking for growth, but firms that make smart use of their capital. This is a great core holding.

Other funds worth considering include CI Harbour, Mackenzie Cundill Canadian Security, Mackenzie Universal Canadian Growth, Saxon Stock, Synergy Canadian Value Class, and Trimark Canadian SC.

For funds investing in smaller companies, consider Beutel Goodman Small Cap, Clarington Canadian Small Cap, Mawer New Canada, Saxon Small Cap and Standard Life Canadian Small Cap A.

Remember; hold no more than two funds for Canadian stock exposure - one investing in larger companies and one in smaller firms. That's it. If you already hold another fund not on this list - either stick with what you've got or change it altogether. Don't simply add to your "collection" of funds.

Canadian bond funds

When dealing with bond funds, fees are critically important. Hence, I won't go into specific picks for plain vanilla bond funds, except to urge you not to pay much more than (a MER of) 0.8 per cent annually for bonds.

However, it's worth reminding you of my previous comments in this space about the opportunities in corporate bonds. My Strategy Update from December will refresh your memory on my view and top picks among high yield bond funds.

Canadian balanced funds

Since roughly 2/5th of most balanced funds are held in bonds, fees remain an important factor in the selection of balanced funds. I must admit that I'm not a big fan of these funds, but I recognize their appeal, and application to many portfolios.

For those willing to get more involved, I'd rather see investors take what they'd otherwise plunk into a balanced fund, and split it - 60 per cent in a Canadian stock fund and 40 per cent in Canadian bonds.

If you still want the convenience of buying one fund, you won't go far wrong with Mawer Canadian Balanced RSP, Saxon Balanced, or Trimark Income Growth SC.

Everything in moderation

As noted in my comments under Canadian stock funds, it's important to realize that I've jotted down the names of many investment funds. But, by no means should you load up on all of them. Equally important to picking good stand alone funds (perhaps more so) is making sure to put them together in a manner that provides you with a mix of funds, each of which plays a unique role in the context of your total portfolio. That should set the stage for strong diversification benefits without unduly sacrificing your return potential.

Next week: Top foreign picks.