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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.
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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.
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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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