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Jan 29 2014

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Putting Canadian Mutual Funds To The Test





Thomas Edison was dubbed a wizard when he created the electric light bulb.

The Wright Brothers became American icons when they flew the first airplane.

But when John Bogle created the first index fund in 1975, it was labelled Bogle’s folly. That a passive collection of stocks could outperform most professional money managers was considered a joke.

Now, nobody’s laughing.

Vanguard’s Total U.S. Stock Market Index, thanks largely to its popular, lean-cost structure, is now the largest fund on the planet.

Because most money in stocks is actively managed, the average professional trader earns the return of that given market, before fees. After adding management costs, the majority underperform their benchmark index.

But you can’t buy a benchmark index – not exactly. You can purchase index funds and exchange-traded funds. But they also charge fees. Do they beat actively managed funds after doing so?

Taking indexing theory to the street, let’s see how some of Canada’s fund providers compare with indexes you could actually buy.

Read the rest of the article from the Globe and Mail here.








About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2014/01/putting-canadian-mutual-funds-to-the-test/

13 comments

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  1. avatar
    Matt

    Andrew,

    I dont understand the 10-year Avg Return % for the funds in the graphic at the bottom of your article, when I compare them to other indexes in Vanguard. For example, the TD e-series US Index has a 4.86% annualized return, where Vanguard’s Total Stock Market Index has a 8.11% annualized return for the past ten years. Similar differences exist for the International equities.

    Are the number after some kind of tax on annual sales and distributions?

    Matt

    1. avatar
      Andrew Hallam

      Hi Matt,

      You may want to do a currency conversion. These returns were all in Canadian dollars.

      Cheers,
      Andrew

  2. avatar
    Francis

    I think you just prove that these “active” RBC fund are just index fund in a closet, the lag is pretty much the difference in fee.

    1. avatar
      Andrew Hallam

      Francis,

      That’s often the case. But if you look carefully, some of them would have beaten the market before fees. And others would have been hammered. Check each of them individually. I’m about to write about CIBC’s funds next. And they look a heck of a lot worse. Sad that people buy them, isn’t it?

      1. avatar
        Jamie

        Hi Andrew,

        Do you think the fact that the average consumer isn’t financially literate is the main reason why banks don’t bother pushing great products like the TD eseries funds? I mean, I remember walking into TD to purchase them and the Financial representative looked at me as though I was asking him to purchase some sort of derivative instrument that nobody understood. Even moreso, he asked why I specifically wanted the Eseries funds and not their more readily available TD funds… It seemed obvious to me, the cost effectiveness of the Eseries is the cachet…

        Thank you for your book it lead me to a better way to manage my money.

        Cheers,

        Jamie

        1. avatar
          Andrew Hallam

          Hi Jamie,

          I agree completely. And of course, the banks profit greatly from their more expensive products, so they push their advisors to recommend them.

          Cheers,
          Andrew

  3. avatar
    Jeanne

    Hi Andrew,

    I have recently chanced upon your book and am interested to start index investing. May I just get your opinion about the Lyxor UCITS ETF MSCI World on SGX? Will it be suitable to be used as a world stock index fund?

    Thanks in advance!

    Cheers,
    Jeanne

  4. avatar
    J

    Hello Andrew,

    First off, I have really enjoyed reading your book. Thank you for enlightening and educating me!

    A question for you related to your model portfolio linked in the article. I see the portfolio contains both Emerging Markets and Established Markets Index Funds. Why own both of those and not a Total International Index instead? I am going to be setting up an indexed portfolio based on your guidelines in the book and have been weighing whether the overall Total Int’l Index is the best option vs. a split between Established and Emerging (or just Established, like you I believe as I think I saw you have VEA).

    Best,
    J

    1. avatar
      Andrew Hallam

      Hi John,

      It really doesn’t matter whether you split the international between developed and emerging, or just go with total international. More importantly, controlling your emotions year in and year out will have the greatest effect on your investment performance.

      Cheers,
      Andrew

  5. avatar
    Liam

    Hi Andrew,

    I have a DBS Vickers account, and I am looking to make my initial purchase to start my portfolio

    I read that you have advised against buying from the NYSE bcause of the extra charges on etfs, which market would you recommend as the lowest cost for British expats (maybe all non US expats)?

    Thanks!

    1. avatar
      Andrew Hallam

      Hi Liam,

      No, there aren’t extra charges on the U.S. domiciled ETFs. A reason to avoid them is to sidestep U.S. estate taxes that would need to be paid to your heirs if your account value exceeds $60,000 USD–not something you would have to pay if your ETFs were domiciled in another country. This post might help: http://andrewhallam.com/2014/01/expat-index-investors-should-duck-u-s-estate-taxes/

  6. avatar
    Irene

    Just a bit confused about the 10 year numbers. When I check the stats for each fund mentioned on the Globe and Mail’s website, I see different percentages for the 10 year avg than in your article. Am i looking in the wrong spot?

    RBC equity states 6.26%, your article says 6.5.
    http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=18183&cid=RBC%20Global%20Asset%20Management%20Inc.

    RBC US equity is 2.4, your artice says 2.70
    http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=18203&companyName=RBC%20U.S.%20Equity

    Thanks

    1. avatar
      Andrew Hallam

      Hi Irene,

      That article was written a couple of months ago. If you saw 10 year returns today, they would be slightly different because they would have different starting and ending points.

      Cheers,

      Andrew

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