RBC’s Select Series Lacks an Edge

The largest allocation fund series in Canada, while thorough, still leaves some questions.

Michael Dobson 21 February, 2024 | 4:57AM
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RBC Select brings together the full resources of RBC Global Asset Management but ultimately fails to stand out against peers in any particular area:

Three key committees impact RBC Select’s allocation portfolios: the Long-Term Returns Committee, the Investment Policy Committee, and the Investment Strategy Committee. The Long-Term Returns Committee sets out 10-, 20-, and 30-year return expectations for asset classes like U.S. equities and Japanese money markets. The Investment Strategy Committee sets out shorter-term macroeconomic outlooks which filter to the Investment Policy Committee who oversees the asset allocation decisions. Both are handled at a quarterly cadence.

Members among all three overlap – Chief Investment Officer Dan Chornous chairs both the Investment Policy Committee and Investment Strategy Committee and team leaders from RBC GAM’s 18 different asset-class specific investment teams all provide input. This includes the insights from BlueBay Asset Management which manages many well-rated bond strategies.

A Variety of Geographic Exposures and Underlying Funds

Select’s underlying fund line-up looks different from one risk option to the next. This most likely reflects the Investment Policy Committee’s portfolio optimization efforts. For example, BlueBay Monthly Income only appears in Growth and Balanced. BlueBay European High Yield only appears in Balanced and Conservative. Very Conservative mainly uses PH&N Bond Fund for its main Canadian bond exposure while the other risk options opt for the RBC Bond Fund.

As a result, regional exposures can also look different from one strategy to the next. Canadian stocks represent between 24% to 40% of the equity sleeve and Canadian bonds represent between 47% and 60% of the bond sleeve depending on the risk option as of December 2023.

More Funds, More Questions

Certain questions remain around fund selection and whether it’s led to an edge. Select has grown the number of underlying funds across the series from six at inception to 39 in 2023 though some positions appear to overlap with others. For example, all 33 positions in RBC Emerging Markets Equity Focus also appear in RBC Emerging Markets Equity Fund. Both appear together in Select Balanced, Select Growth and Select Aggressive Growth. Similarly, the three Canadian bond funds that appear in Select also have highly correlated excess returns against the Morningstar Canada Core Bond Index.

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About Author

Michael Dobson  is a Manager Research Analyst at Morningstar Canada.

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