100% RSP-eligible International Funds: Adding Value to Your RSP

From an asset allocation perspective, international investing makes sense, particularly for the long-term horizons of an RSP. By seizing the opportunities inherent in exposure to many markets, you significantly increase the potential for capital growth. Diversifying into international funds ensures that your RSP is working as effectively as possible . . . every day, year after year.

100% RSP ELIGIBILITY: Regulations governing governing RSPs require that at least 80% of an RSP portfolio consist of Canadian assets. For many investors, that curtails interest in international markets. At C.I., however, we offer several 100% RSP-eligible international funds including the CI Global Equity RSP Fund, the CI International Balanced RSP Fund, the CI American RSP Fund and the new CI Global Boomernomics® RSP Fund. These funds are structured to provide full exposure to international markets while meeting requirements for 10% RSP eligibility.

MORE OPPORTUNITIES, REDUCED VOLATILITY: You can reduce portfolio volatility by diversifying internationally. Many foreign markets are far larger and more diverse than Canadian markets. The U.S. and European markets are prime examples of developed foreign markets which can add immeasurably to the quality of your RSP by allowing you to participate in the growth of some of the world's most prosperous companies.

Derivatives Reviewed: How International Investments can be 100% RSP-eligible

Imagine a huge rock lifted up in the air and balanced on the end of a playground teeter-totter. Any reduction in the weight on the bottom end and the rock may come crashing down. It may be dangerous, but it's not the rock's fault. It's because the rock is leveraged.

Recent press attention has focussed on isolated cases of large investment losses through the mismanagement of leveraged derivatives. This has created a common perception of derivatives as scary and dangerous, a perception which contains more fiction than fact. It's not the fault of derivatives, it's because they were leveraged.

Generally, any investment that derives its value from underlying stocks, bonds, or market indices is called a derivative. The use of derivatives by Canadian mutual funds is strictly regulated, both by type of derivative and by the manner in which derivatives are used. Mutual funds may trade in derivatives only with a counterparty that has an approved credit rating. As well, mutual funds cannot use leverage or borrow money to buy derivatives.

The careful use of derivatives gives CI investors access to outstanding investments across the globe while still retaining 100% RSP eligibility.

Several of C.I.'s funds use derivatives to:

• Obtain or modify exposure to equity and fixed income securities. For the S&P 500, for example, it is more reasonable to buy a derivative based on the whole index than buying all 500 stocks.
• Decrease risk. A fund may use derivatives to lock in an exchange rate and reduce the risk of currency fluctuations. This is called hedging, locking in a future buying or selling price in times of volatility, and is an important component of sound portfolio management.
• Increase portfolio liquidity and enhance returns. Derivatives may have lower custodial and transaction costs which enhance returns.

One type of derivative used by C.I.'s international RSP funds is a futures contract. This is simply an obligation to buy or sell a specific instrument at a specific price on a specific date. Futures are not considered foreign content, and so they are 100% RSP eligible. Also, because every CI fund must set aside enough cash in Canadian dollars to equal the contract exposure of the future, they are never leveraged.