Investors fleeing to safety
(Special) - Perhaps not surprisingly considering recent volatility in financial markets and uncertainties in global economies, Canadian investors seem to be placing more emphasis on safety, sometimes even to the expense of returns.
In a recent RBC poll, 44 per cent of Canadians ranked safety of their investments as being more important than high interest rates when they considered investing in Guaranteed Investment Certificates (GICs).
"While the popular belief is that the best rate is paramount when choosing to invest in GICs, our findings confirm that Canadians consider guaranteed principal first and foremost for the protection and safety of their investment," said Rosalyn Kent, head of GICs and savings with RBC.
The poll also found that most Canadians are taking a long-term view of their GIC investments with 65 per cent saying that, when deciding to purchase a GIC, having the flexibility to cash in their GICs before their maturity date was the least important consideration.
The majority of GIC investors are interested in GICs that offer an interest rate that increases every year, followed by GICs that provide a regular and ones that are linked to the stock market.
Recent market swings have led many asset managers across the investment industry to focus on strategies to defend portfolios against potential volatility while still delivering positive returns.
"While fixed income investments used to provide growth and stability, when inflation is factored in real returns may be negative in the medium term," says Sandy Cimoroni, president of TD Mutual Funds.
TD recently launched two new balanced funds and six new corporate class funds it says meets the desire of many investors today to reduce volatility and risk while still yielding returns.
TD says its new Tactical Monthly Income Fund and Strategic Yield Fund are designed to earn income and capital appreciation with low volatility to an investor's portfolio by taking a very flexible approach to asset allocation and focusing on investments in income-producing securities.
"This was a strategy that we saw in the institutional side of the business and we have now made it available to our retail customers," said Cimorini.
TD also has expanded its line-up of corporate class funds with six new offerings, including two new global funds. TD's corporate class funds span different asset classes from fixed income to equity funds as well as balanced fund options.
"For investors looking for tax-efficient investment solutions, corporate classes provide the ability to defer taxes when switching between classes and the flexibility to decide when to trigger a capital gain or loss," Cimorini said
Corporate mutual funds have been around in Canada for more than 20 years, but it's only been fairly recently that investors have been paying more attention to them, primarily because of their tax advantages.
Unlike mutual funds which realize a gain or loss when they are redeemed, investors can move and transfer their money between different sectors and funds within a corporate fund without realizing losses or gains. Capital gains and losses only are realized when the investor transfers out of the corporate class fund.
It's like walking into a house. Once you're in, you can walk back and forth through all the rooms in the house and don't pay a cent in tax until you walk out the front door.
Over time, it's the tax deferral feature of corporate class funds that allows investors to accumulate more wealth than if they had to pay tax on their gains each time they rebalanced their portfolios.
A portfolio of corporate class funds can be diversified geographically, regionally, by industry, asset class, investment styles and investment managers.
Corporate class funds are suitable for both registered and non-registered portfolios, and qualify for Registered Educational Savings Plans (RESPs) and as foreign content in registered accounts.
Corporate class funds generally are more attractive to people with investments that will be taxed outside of tax-deferred savings plans such as Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs).
Despite their tax advantages, before choosing the corporate class option investors should ensure that the fund or funds they're buying meet(s) their personal needs and investing objectives.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
Copyright 2012 Talbot Boggs