Mutual funds kind to RRSPs in 2010

Mutual funds kind to RRSPs in 2010 ; Financial pros are cautiously optimistic that a strong performance by a broad base of mutual funds in 2010, fuelled by bullish markets that have recouped much lost ground over the past two years, will continue to be successful in 2011.

However, prudence and diversification remain paramount considerations for registered retirement savings plan investors, they say.

"In 2010, Canadian small and mid-cap funds (tied to stocks of small and medium-sized companies) posted another really strong year, which could be a good leading indicator for Canadian large-cap funds in 2011. While financial market history is never a perfect guide, small-caps are generally more economically sensitive, and therefore tend to lead the early stages of a stock market recovery," explains Thomas Dyck, president of TD Mutual Funds in Toronto.

According to TD Mutual Funds' internal data, the entire spectrum of Canadian mutual equity funds returned around 11 per cent, compared to about eight per cent by global mutual equity funds in 2010, Dyck notes.

Much of the mutual fund debate in Canada revolves around how much should be invested in funds that are heavily weighted toward commodities and natural resource stocks, many of which have been booming. For example, "according to our data, precious metals were up, on average, almost 52 per cent in 2010, which was far and away the best-performing mutual fund category," says David O'Leary, director of fund analysis for Morningstar Canada in Toronto.

But last year's success provides no guarantee for 2011, experts say. Moreover, such funds can be very volatile.

"If precious metals can be up 52 per cent in one year, it's entirely possible they can be down 52 per cent another year, and most people can't stomach that type of swing in the value of their investments."

Natural resources funds, including oil, gas and other energies, were the second-best-performing mutual fund category in 2010, according to Morningstar data. They were up 26.5 per cent, while Canadian small caps -- many of which include mining and resource companies-- were up nearly as much: 26.25 per cent, O'Leary says.

Larry Moser, Bank of Montreal's regional sales manager for the Ottawa region, strongly advocates that investors diversify their mutual-fund RRSP holdings.

"We made that mistake with the tech bubble in 2000, when everyone thought techs were infallible, and a lot of people had a lot of money in mutual funds and individual stocks like Nortel and really got hurt," he says. "So we're trying to not make the same mistake this time around with commodities." For the latest updates PRESS CTR + D or visit Stock Market news Today

Related Post: