“Mutual Fund of the Year.” “Top 100 Mutual Funds.” “Best Funds 2005.” “Manager of the Century.” “28% Annual Return Over 3 Years!”

How does an investor choose which funds to put in their investment portfolio? There are over 5,000 funds available in Canada and limitless advice on which ones you need to have. Clearly, some choices will be better than others. But how to tell?

At Fraser Financial we have developed a process for creating and maintaining the “Preferred List”, a handy refer-ence to aid in portfolio design and construction. There is room for 100 funds, but it currently lists 75 names covering both Canadian and International markets. We believe the listed funds are among the very best available. The list is reviewed and updated quarterly, though many names have remained on the list for many years. On average, the preferred funds have outperformed the S&P/TSX over the past three, five and 10 years.

Here is how our process works. First, a noteworthy fund is proposed by one of our advisors. The proposed fund is then reviewed by all of our other advisors to ensure it meets our standards and is among the best of its kind within the fund company and within the industry. The original proponent must then defend the proposal with respect to any questions or concerns raised. Criteria include consistency of returns, performance relative to its peers, the rigour of its investment management processes, and the quality of the fund company itself. The fund is usually required to have a three-year track record, but exceptions can be made under certain cir-cumstances. (Remember that this is not ultimately about past performance, but about getting the best results for our clients going forward.)

While we believe the Preferred List offers some of the best choices available, some of the funds may not be suitable for all inves-tors. For example, a volatile China or resource fund would not be suitable for a conservative investor who isn’t comfortable trading higher overall returns for higher year-to-year volatility, nor for an investor with a short time frame.

Of course, there is much more to putting a portfolio together than just having a selection of good funds. The Preferred List is one part of an investment process rather than an end in itself. Knowing our clients’ goals, time frames and risk tolerances allows us to develop individual asset allocations, which form the shape and general tone of the portfolio. The Preferred List provides the brush strokes to complete the picture.

Simply put, the Preferred List is an ideal set of building blocks to add as the final step in building and managing your portfolio, once the planning, appropriateness and asset allocation are complete. If you haven’t done so already, have your planning and in-vestment strategy reviewed, and then, get preferred!