|
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.
|
