As a boy, I always liked my dad's friend Joe, mainly because I was impressed by his sleek red 1964 Corvette Stingray. Fast, dangerous during the merest whiff of snow, and with a backseat barely worthy of the term, this wasn't designed to be a family car. Joe took it for a spin only occasionally, relying instead on a minivan to haul around his family of four. While the Corvette gave him a periodic thrill, the minivan was his family's workhorse.
Portfolios need workhorses, too. While investments with big returns and fat yields get a lot of the attention, steady Eddies should comprise the core of your portfolio. There's no one accepted definition of a core holding, but they are typically well diversified, with a focus on steadier large-cap domestic and foreign stocks and high-quality bonds. Entirely unflashy and eminently practical, these are the minivans of your portfolio.
This isn't to say you should exclude racier fare altogether. Relatively volatile asset classes, such as small-cap or emerging-market stocks, provide diversification, and a little pep, to otherwise mild-mannered portfolios. But these areas merely should supplement your core holdings. (You'll find our best ideas for non-core holdings here)
I've listed some of our best core fund ideas below. These funds all earn positive Analyst Ratings, meaning Morningstar analysts believe they're likely to outperform their benchmark and/or peers. The ratings -- Gold, Silver and Bronze -- depend on the level of confidence analysts have in a fund's long-term prospects.
Canadian Equity
Beutel Goodman Canadian Equity 
: Led by Morningstar's 2013 Domestic Equity Managers of the Year, this fund demonstrates the virtues of a disciplined process. Veteran managers Mark Thomson, Pat Palozzi and James Black look for companies with strong free cash flows and only buy in when they trade at a 30% discount to their fair values. When their holdings reach fair value, they automatically sell a third of their position, limiting the risk of holding more expensive stocks. The team then gets a fresh set of eyes to reassess the stock; if the company's value hasn't increased, they'll sell the position outright. This process has led to outstanding protection on the downside. Combined with solid performance in up markets, the fund has delivered outstanding long-term results. This fund invests a small piece of its portfolio in Beutel Goodman Small Cap . For pure large-cap exposure, Beutel recently launched Beutel Goodman Canadian Intrinsic.
Mawer Canadian Equity : Lead manager Jim Hall and co-manager Vijay Viswanathan employ a seemingly common strategy: Buy reasonably priced, high-quality companies and hold them for the long term. The managers distinguish themselves with their disciplined approach, thorough research and keen awareness of risk. Limiting risk doesn't mean they ape their benchmark, however. For example, the fund's exposure to energy and materials stocks clocks in well below the S&P/TSX Composite Index's. As a result, it has tended to lag when commodity prices rally, but the fund's long-term record ranks among the best in its category.
CI Signature Select Canadian Equity 
: While the Beutel and Mawer managers build portfolios from the bottom up, Signature's Eric Bushell and his team do so from the top down. It's tough to make correct macroeconomic calls consistently, even for Bushell and his team: Their cautious outlook has contributed to lacklustre returns in recent years. However, the group has generally gone on the defensive at the right time, as in 2008 and 2011. And over the long term, the team boasts meaningful advantages. The biggest is the breadth and depth of their resources. Signature's 33-person team includes macro specialists and seasoned stock and bond specialists, giving them a broad set of inputs to formulate their views. Despite its name, the fund's portfolio is split between Canadian and foreign stocks, with the latter tilted toward the U.S.
Sionna Canadian Equity : You typically don't see many true-blue value investors focused on Canadian stocks, but manager Kim Shannon is an exception to the rule. Shannon's approach isn't flashy. She looks for stocks trading at a 30% discount to their intrinsic values on the belief that stock prices eventually revert to their true values. Shannon and her team then look for businesses that can deliver consistent earnings and free cash flows. They avoid making big sector bets versus the S&P/TSX Composite Index, giving the fund broad exposure to the Canadian market. Her focus on stocks with defensive traits has led to below-average losses in down markets.
Sentry Canadian Income 
: Lead manager Michael Simpson has done a terrific job identifying companies that can continue to use excess cash flow to pay dividends or invest in high-return projects. His high-quality portfolio has provided a smooth ride over time, and the fund's long-term record smashes that of the benchmark. Investors shouldn't necessarily expect similarly brilliant numbers going forward. The fund earned much of its success investing in smaller names, and its steep 2.70% MER will be a headwind. But the fund's long-term prospects remain good.
RBC North American Value : Managers Stu Kedwell and Doug Raymond also run Neutral-rated RBC Canadian Equity , but that fund's exclusively Canadian focus and tight benchmark constraints don't put the team's talents to the best use. On the North American Equity mandate, the duo has the flexibility to invest in Canada and the United States based on where they see opportunity. After using RBC's quant screening tool to winnow their investment universe, Kedwell and Raymond look for companies with high returns on invested capital, and while value oriented, avoid turnaround plays. The team's record tops most of its rivals in the Canadian Focused equity category.
Foreign Equity
Mawer Global Equity and Mawer International Equity : These funds employ the same strategy and enjoy the same competitive advantages as their Canadian sibling, though their mandates are much broader. Mawer Global Equity's mandate includes the Americas; just over half the fund is in North America, with about 5% in Canada. Mawer International Equity, by contrast, invests mostly outside the Americas, with Europe predominating. Both funds are led by top-rate managers. Global Equity's Paul Moroz was Morningstar's International Equity Manager of the Year in 2013, while International Equity's David Ragan sits atop his category since taking lead management duties in 2010. Both Moroz and Ragan are supported by Canadian Equity lead Jim Hall.
Franklin Mutual Global Discovery : This offering applies Mutual Series' cautious, value-oriented approach to the global realm, with assets currently split roughly in half between the U.S. and the rest of the world. Managers Peter Langerman and Philippe Brugère-Trélat pay close attention to downside risk. They look for stocks trading at big discounts to fair value, which they calculate using conservative assumptions. Because cheap stocks can be risky, they diversify across about 100 holdings. Unique among Canadian offerings, they keep a small slice of their portfolio in distressed debt and merger-arbitrage opportunities. The team has delivered strong returns with moderate volatility since taking over in 2009, and this strategy has been successful over the long term in both Canada and the U.S. Investors should know that the managers have hedged from 50% to 80% of the fund's currency exposure, so it won't offer as much currency diversification as non-hedged funds in the category.
Mackenzie Ivy Foreign Equity : Like Franklin Mutual, the Ivy team pays close attention to downside risk. While Mutual does so primarily by investing with a margin of safety, Ivy relies more on business quality. This high-quality focus allows it to invest in a concentrated manner; its most recent portfolio held just over 30 stocks. While concentration can lead to high volatility, this fund has been among its category's least volatile over the long haul. Management's conservative style will likely lead to modest results in up markets; the fund's five-year record lands in the Global Equity category's bottom quartile, despite its respectable 11% gain. Because the fund has been able to hang on to its gains in down markets, it has been able to succeed over the long term, with peer-beating 10-year returns.
TD U.S. Blue Chip Equity : As you might surmise from its name, this fund, managed by subadvisor T. Rowe Price, focuses mainly on well-known large-cap U.S. stocks, though it also holds a smattering of up-and-comers. Manager Larry Puglia has led the U.S.-domiciled version of this fund since 1993, making him one of the most experienced U.S. equity managers available in Canada. Puglia taps into a team of 100 sector analysts, an advantage rivaled by few Canada-domiciled U.S. equity funds. His growth-oriented style courts volatility, though the quantitative risk management tools he has used since 2007 has helped keep it in check. The fund's risk/reward profile has looked superior to its rivals since then. One detractor is the fund's above-average 2.55% MER. In the highly-efficient U.S. market, that's a high hurdle to clear.
CI American Value : Cash flow is king for the trio who head up this fund. Managers David Pearl, William Priest and Michael Welhoelter, all co-founders of subadvisor Epoch Investment Partners, look for firms that can deliver sustainable free cash flow growth and use it to pay dividends, buy back stock and make prudent acquisitions. Their holdings vary drastically by sector versus its S&P 500 benchmark, though its 60-stock portfolio is hardly a benchmark clone. Admittedly, the fund hasn't been a stellar performer in recent years, though its long-term record remains stellar. It's worth noting TD purchased Epoch in late 2012, raising the risk that CI could end its relationship with Epoch. Management stability is a potential worry, but TD built in plenty of financial incentives for Epoch managers to stick around, at least in the short and intermediate term.
Fixed Income
PH&N Total Return Bond : Among Canadian bond managers, PH&N stands out with its level of management expertise spanning both government and corporate bonds. While most rivals lack sophisticated tools to manage risk, PH&N's in-house risk-management software, BondLab, helps it analyze trades and exposures at the portfolio and security level. Moreover, the 0.59% MER on the D-series gives it a meaningful competitive edge. The fund has parlayed these advantages into a winning record versus other Canadian bond funds, though it's worth noting it has barely matched the DEX Universe Bond Index.
TD Canadian Bond and TD Canadian Core Plus Bond : TD gives PH&N a run for its money in the risk-management department, but the real strength of these funds come from process. TD analysts assign credit ratings independent of ratings agencies and construct an approved list of issuers that portfolio managers can choose from. This imposes discipline in the process and prevents managers from falling in love with issuers. TD Canadian Bond focuses on investment-grade government and corporate bonds, while TD Canadian Core Plus Bond can keep up to 20% in high-yield bonds.
Beutel Goodman Income : This fund is led by one of the most seasoned teams in the business. Lead manager Bruce Corneil has been with Beutel Goodman for a couple of decades and was with Manulife for a couple decades before that. He has worked with co-manager David Gregoris for nearly his entire Beutel tenure. Dedicated credit analyst Sue McNamara has been on board since 2009. The managers employ a fairly conservative approach. Unlike their PH&N rivals, they don't touch high yield, for example. The Beutel crew has been leery of taking on interest-rate risk in recent years and have held a large cash stake -- a stance that has led to poor relative returns of late. Its long-term record remains strong, though, and the fund could appeal to an investor who wants to preserve capital in an environment of rising interest rates.
