Harry believes that if you get sold on actively managed funds from the big Canadian banks, then you’re making a huge mistake.

The funds from CIBC, Royal Bank, The Bank of Montreal, Toronto Dominion Bank and ScotiaBank are rip-offs, according to Harry.

Why does he feel that way?

Harry understands that they charge nearly 2.5% annually—which generate profits for the banks, at the expense of those who are unfortunate enough not to realize that there are far more profitable alternatives.

We’ve been tracking Harry’s account since August, 2008.  That’s when he opened an account, with QTrade, and built a balanced portfolio of stock and bond indexes.  The money is real, the account is real, and Harry is real—but I’ve changed his name to protect his privacy.

Harry is retired, so his investment account has augmented his income.  Instead of adding money to it, Harry has slowly been withdrawing money when he needs it.  Because his wife has a pension with Telus, Harry doesn’t need a lot of additional income.  But his account (currently valued at $273,418) helps him to pay for vacations, and maintenance on his small, private plane.

First, let’s have a look at Harry’s current holdings.

He owns 6 indexes:  a Canadian high dividend yielding stock index (XDV); a short term and a medium term Canadian government bond index (XSB and XBB); an international stock market index (XIN); a U.S. stock market index (XSP) and a Canadian stock market index (XIC).

Harry isn’t going to pretend that his account is perfect.  And many people would opt for different exchange traded index funds—perhaps even fewer than Harry’s chosen six.

Description Symbol Quantity Current Price Market Value % Holdings
Cash       $1,853.84 0.7%
ISHARES D/J CAN SLCT DIV IDX XDV 1,660 $21.84 $36,254.40 13.3%
ISHARES DEX SHORT BD IDX FD XSB 3,850 $28.69 $110,456.50 40.4%
ISHARES DEX UNIV BD IDX FD XBB 220 $29.35 $6,457.00 2.4%
ISHARES MSCI EAFE INDX FUND XIN 1,835 $18.74 $34,387.90 12.6%
ISHARES S&P 500 HEG CAD FD XSP 2,820 $15.28 $43,089.60 15.8%
ISHARES S&P/TSX CP CMP IDX XIC 1,830 $22.36 $40,918.80 15.0%
Totals  $CA   $273,418.04 100%

 But let’s see how Harry’s account has performed, compared to the balanced funds at the Big 5 Canadian banks.

After all, Harry’s account is balanced between stocks and bonds (with 42.8% bonds and the rest in stocks) so it’s a good “apples to apples” comparison.

Since August, 2008, Harry’s money has gained 14.01%, in Canadian dollars.

And the big five banks?

Clearly, Harry is continuing to extend his lead over these professionally managed funds.

Nearly 27% of Harry’s portfolio is comprised of international and U.S. indexes. In Canadian dollar terms, these haven’t performed very well, thanks to the rising value of the Canadian dollar.  The balanced funds for the big five banks don’t have much (if any) international exposure.  They should have knocked the lights out, compared to Harry’s account, because they’re denominated almost entirely to Canadian dollars.

But Harry is still ahead of them—despite that international component.   

And when the Canadian dollar loses ground to international currencies (nothing lasts forever) Harry’s account will surge even further ahead of the expensive, actively managed funds at the Big 5 Canadian banks.  Costs matter. 

And Harry is kicking butt!

Harry’s Account    

Monthly Performance
Month Market Value Net Invested ROR
April 2010 $267,204.53 $258,651.99 -0.28%
May 2010 $261,582.49 $258,651.99 -2.10%
June 2010 $258,147.60 $258,651.99 -1.31%
July 2010 $266,692.57 $258,651.99 3.31%
August 2010 $265,055.10 $258,651.99 -0.61%
September 2010 $272,722.06 $258,033.35 3.13%
October 2010 $277,398.78 $258,033.35 1.71%
November 2010 $276,264.91 $256,933.35 -0.01%
December 2010 $283,564.94 $256,933.35 2.64%
January 2011 $284,275.82 $255,333.35 0.81%
February 2011 $273,259.59 $238,833.35 1.93%
March 2011 $272,314.29 $238,833.35 -0.35%
Quarterly Performance
Quarter Market Value Net Invested ROR
2nd Quarter ’10 $258,147.60 $258,651.99 -3.66%
3rd Quarter ’10 $272,722.06 $258,033.35 5.89%
4th Quarter ’10 $283,564.94 $256,933.35 4.39%
1st Quarter ’11 $272,314.29 $238,833.35 2.40%
Yearly Performance
Year Market Value Net Invested ROR
2008 $255,528.62 $288,651.99 -12.5%
2009 $271,793.49 $268,651.99 15.52%
2010 $283,564.94 $256,933.35 8.91%
2011 (YTD) $272,314.29 $238,833.35 2.40%