The Good Life, Wealth

Low MER Bond Funds

We’re on top of the RRSP deadline, and if the rough ride in the stock market is steering you to bonds, here is some simple advice from the Report on Mutual Funds. If you choose a bond fund – a mutual fund that invests in bonds – the best indicator of how it will perform these days is the size of its management fee. Which means that to pick a winning fund, just look for the ones with the lowest fees. That’s because with low interest rates,  returns on bond funds are very thin, and if you pay too much to the manager, there will be little left for you
Philip Lee, an analyst with the mutual fund rating agency Morningstar Canada crunched the numbers. He found that not only do bond funds with the lowest management expense ratios (MERs) tend to have the best total return, but that the opposite is also true.
Those with biggest fees have the lowest total return to the investor.
Here’s a perfect example.  One of Lee’s favourite funds,  the Phillips, Hager& North Total Return Bond Fund, with an expense ratio of just over half a percent returned 3.8% last year. Meanwhile, the average for funds like this was just 2.3%.

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