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Hidden Retirement Gem – The Saskatchewan Pension Plan (SPP)

It has never been easier for the do it yourself (DIY) investor – especially for the investor that likes to put the odds in their favour and indexes their portfolio over the long term.

In my articles about index investing over the last little while, I’ve mentioned a number of ways to properly index your portfolio. Many of these require rebalancing the equities/bonds in your portfolio on an annual basis, or whenever you have new money to add to the account.

Easy Index Investing

There are now a number of low-cost solutions that will allow you to invest without even having to rebalance your portfolio.  Off the top of my head, there are three super easy ways to invest which are great for the hands-off investor.

  1.  Vanguard has introduced all-in-one ETFs that give Canadian investors global diversification for a relatively low management expense ratio (MER: ~0.25%).  There are three options: VCNS – 40% equity/ 60% fixed income; VBAL – 60% equity/ 40% fixed income; VGRO – 80% equity / 20% fixed income.
  2.  Tangerine Investment Funds – Similar to the Vanguard product except that it’s a mutual fund, and charges a higher fee (MER: ~1.07%).  They offer 4 broad indexed options (I’m not counting their dividend fund): Balanced Income – 30% equity/ 70% fixed income; Balanced – 60% equity/40% fixed income ; Balanced Growth – 75% equity/ 25% fixed income; and, Equity Growth – 100% equity.
  3. A Robo Advisor – These are companies that were created to make investing easier.  You sign up, they determine your risk profile and provide you a recommended portfolio.  You simply deposit your cash and the system will keep you invested in your predetermined asset allocation without having to manually rebalance.  How much does it cost?  BMO’s product starts at about 0.70 of your portfolio value but expect to pay between 0.30% and 0.70% of your portfolio value.

Saskatchewan Pension Plan

I will admit that I’m getting a little off track – so what does the Saskatchewan Pension Plan (SPP) have to do with easy investing?  Lots!  I was actually a little surprised at this little gem upon reading about them further.  The SPP offers a balanced fund that is well diversified, with proven performance at a reasonable cost. Best of all, it’s available to all Canadians and contributions can be made via credit card!

Here are the highlights of the SPP Balanced Fund:

  • It’s a balanced fund with index-like returns (since inception 32 years ago, the balanced fund annual return has been 8.1%);
  • Relatively low MER that is typically below 1%, last year it was 0.83% for the balanced fund;
  • Available to all Canadians;
  • RRSP only;
  • Can invest up to $6,000 per year (depending on available RRSP contribution room) which can be paid via credit card!  If you have a 2% credit card, that’s an extra $120 cash back (some of my favorite cash back credit cards);
  • The funds are locked in but you can access the funds starting at age 55;
  • $411M assets under management.

SPP Balanced Fund Investments

The long-term 8% track record is impressive, so I did a little more digging into their investments.  As of December 2017, their asset mix which turns out to be very similar to a 60% equity/40% fixed income indexed portfolio:

  • Canadian Equity: 19%
  • US Equity: 19%
  • International Equity: 19%
  • Bonds: 28%
  • Mortgages: 3%
  • Real Estate: 10%
  • Short-term investments: 2%

What makes me nervous about these balanced funds is how “active” exactly are the funds?  Could the fund be a closet indexer (hopefully)?  With that, I dug into the annual report.

SPP Balanced Fund Canadian Equities (top 10 holdings):

  1. Royal Bank of Canada
  2. Toronto Dominion Bank
  3. Bank of Nova Scotia
  4. Canadian National Railway
  5. Manulife Financial
  6. Brookfield Asset Management
  7. Waste Connections
  8. Toromount Industries
  9. Canadian Natural Resources
  10. Brookfield Infrastructure

S&P/TSX Composite Index (top 10 holdings):

  1. Royal Bank of Canada
  2. Toronto Dominion Bank
  3. Bank of Nova Scotia
  4. Suncor Energy
  5. Canadian National Railway
  6. Enbridge
  7. Bank of Montreal
  8. Canadian Natural Resources
  9. Canadian Imperial Bank of Commerce
  10. TransCanada Corp

As you can see, their top 10 Canadian equity positions are very similar to the Canadian index.  With the Canadian market being fairly small, there is a limited selection of big blue-chip Canadian companies, so there is no surprise that their holdings are similar.

SPP Balanced Fund US Equities (top 10 holdings):

  1. Microsoft
  2. JPMorgan Chase
  3. Citigroup
  4. Chevron
  5. United Health Group
  6. Altria
  7. Apple
  8. Wells Fargo
  9. Pfizer
  10. Verizon

S&P500 Index (top 10 holdings):

  1. Apple
  2. Microsoft
  3. Exxon
  4. Johnson and Johnson
  5. General Electric
  6. Facebook
  7. Amazon
  8. Berkshire Hathaway
  9. AT&T
  10. Wells Fargo

It seems that the top 10 holdings differ quite a bit.  The SPP US index seems to be a mix between the S&P500 and the Dow Jones Industrial index.

SPP Balanced Fund International Equities (top 10 holdings):

  1. Total
  2. Banco Santander
  3. BMW
  4. Cash
  5. Deutsche Post
  6. Atlas Copco
  7. Statoil
  8. Nidec
  9. Sumitomo Mitsui
  10. AXA

MSCI EAFE Index (top 10 holdings):

  1. Nestle
  2. HSBC Holdings
  3. Novartis
  4. Roche Holdings
  5. Royal Dutch Shell A
  6. Total
  7. BP
  8. Toyota Motor Corp
  9. Royal Dutch Shell B
  10. British American Tobacco

The biggest divergence is with the international portion of the SPP where it appears to have real active management.  Although their international performance in 2017 beat the index, I’m always weary over active management over the long-term.

Final Thoughts

Overall, the SPP is a fairly attractive option as an easy and fairly cheap way for investors to get access to a balanced mutual fund.  While the Canadian and US holdings are fairly close to the index, there is a significant difference in the international holdings.   Personally, I would stick to a traditional index portfolio (like Vanguard all in one ETFs), but this is a viable option as well.  Also with the added bonus of making the RRSP contribution with a credit card.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 6 comments… add one }
  • Bernie August 27, 2018, 7:27 pm

    The Saskatchewan Pension Plan Balanced Fund may have returned an attractive 8.1% over the past 32 years but it has not faired as well in more recent times. Over the past 15 years the average annual return has dipped to 6.7%. This isn’t bad but it pales in comparison to perennial outperformer Mawer Balanced Fund who returned an average 8.6% over the same period with less volatility and downside. The Mawer fund outperformed the SPP fund in 14 out of the 15 annual periods.

    • Wes September 1, 2018, 1:25 pm

      That is very true. Mawer Balanced Fund has outperformed SPP. But considering that purchasing Mawer requires a minimum $5000, requires a brokerage account or a mutual fund sales rep to perform the purchases, the SPP is much more accessible, has no administration or transaction fees to worry about and is much easier to set up. For some investors, this would be a big draw. Also, comparing the returns on the fund to other passive investments, the SPP has held up fairly well. The poster on this forum has only gone 5 years, but compared to a lot of the Couch Potato portfolios, it has held up fairly respectively for a balanced fund

      https://forums.redflagdeals.com/passive-investment-comparison-thread-trial-mode-suggestions-requested-2218030/

  • FT August 27, 2018, 7:54 pm

    Thanks for the feedback Bernie . I didn’t know the mawer fund was so impressive. Have you examined their holdings ? Are they closet indexers ?

    • Bernie August 28, 2018, 5:39 pm

      Mawer Balanced Fund (MAW104) originated in early 1988. The lifetime annualized return is 8.44% with only two down years, -2.25% in 1994 and -16.11% in 2008. The MER is 0.92%. I can’t imagine that they would have overachieved had they been closet indexers. The fund holdings are comprised of a mix of their other funds which typically also beat the index benchmarks they track.
      Here is the current mix:
      Holdings Weighting
      Mawer Canadian Bond Series O 30.38%
      Mawer US Equity Series O 18.70%
      Mawer International Equity Series O 18.60%
      Mawer Canadian Equity Series O 14.02&
      Mawer Global Small Cap Series O 7.17%
      Mawer New Canada Series O 3.23%
      Mawer Global Bond Series O 2.16%
      Mawer Canadian Money Market Series O 0.06%

  • Gail Bebee August 31, 2018, 6:32 pm

    Given a choice, I would not lock in my RRSP money until age 55. I think it is best to maintain financial flexibility if you have an option. I too am a big fan (and investor) in the Mawer balanced fund which I think is a better alternative than the SPP.

    • FT September 3, 2018, 9:02 pm

      Thanks for the feedback Gail. Would you mind sharing your investment strategy? Do you own any of the Mawer funds?

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