Hi Nancy,
I have a well diversified selection of mutual funds in my RRSP, but my concern is that they are all from the same fund supplier. If that company were to receive some bad press, will that affect the value of my funds?
For example, if all my funds are with RBC and something causes the stock or company to have problems and or go bankrupt, will my funds drop in value? Should I not only diversify my funds, bond, money, equity, growth etc, but also suppliers: RBC, Scotia, Fidelity, Dundee, etc?
With thanks,
Terry
Dear Terry,
Diversification is always important. Mixing the types of mutual funds you hold and/or mutual fund companies or managers you use is good too. If there is an issue with the fund company, the mutual fund itself should not significantly suffer. There could be a sudden increase of redemption demands that would force the fund manager to sell holdings to satisfy the cash demands.
Historically, there has not been any issue with a mutual fund company that has caused such a situation but one can never say never.
There shouldn't be a concern with regard to bankruptcy. Mutual funds are a pooled investment so you actually own a part of each investment held within the fund. When a fund is redeemed the shareholder receives the current value of his or her portion of the pooled funds.
It would not be harmful to own funds from various mutual fund companies, but by choosing different types of mutual funds you will likely find that you're already investing in ones from different companies anyways. For example, one fund company will have a reputation for having a better international fund and another may have a reputation for having the better resource fund.
All in all, I don't think you need to worry too much about diversifying your mutual fund supplier because it may occur on its own.
The difficult part is picking the best performing fund.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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