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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.
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