I feel sorry for the portfolio managers at the Big 5 Canadian banks.

Sure their gargantuan salaries make my salary look like a babysitter’s annual haul, but managing an expensive mutual fund has to be accompanied by an untouchable level of dissatisfaction.

 Take the Royal Bank’s balanced mutual fund as an example.  There are generally two rules the bank gives to portfolio managers:

  1. Diversify the fund over a variety of different stocks
  2. Ensure that the fund has between 35% and 50% of its money in bonds

Every day these managers leave their flashy houses, jump into their flashy cars, and try working their magic with the money they’ve been entrusted with. 

But they don’t tend to do very well.  Why?  Their fees are way too high.  Does anyone care?  Not really.  Few Canadians care to figure out how much money they’re leaving at the doorsteps of bank owners.

Harry Hall is a real man, with a real portfolio. 

I’ve changed his name to protect his privacy, but he has graciously given me access to his account so I could show the world how easily he can spank the returns of expensive mutual funds.

Like the Royal Bank’s balanced fund, Harry keeps roughly 40% of his portfolio in bonds.

Like the Royal Bank’s balanced fund, he rebalances the portfolio once in a while to ensure that he always has “about” 40% in bonds.  (Note—he has rebalanced three times in two+ years).

Unlike the Royal Bank’s balanced fund, Harry doesn’t watch his fund on a daily basis.  In fact, he hardly ever looks at it.

Unlike the Royal Bank’s balanced fund, Harry goes with a cheap, investment option.  He buys index funds.

Harry has taken money out of his account on a couple of occasions, but he hasn’t added fresh money.  He started his account in August, 2008, near the beginning of the biggest stock market drop in recent memory.

What does Harry own?

In the order below, Harry owns the following:  a Canadian high dividend yielding stock index (XDV); a Canadian short term bond index (XSB); a total Canadian bond index (XBB); an International stock index (XIN); an American stock index (XSP) and a broader Canadian stock index (XIC)

If you add up the bonds, you can see that they represent 43.7% of the portfolio’s total, with stocks making up the remainder.

PORTFOLIO BASIC VIEW – CDN Cash

Description

Symbol

Quantity

Currency

Current Price

Market Value

% Holdings

Cash



CAD


$620.76

0.2%

ISHARES D/J CAN SLCT DIV IDX

XDV

1,660

CAD

$19.90

$33,034.00

12.1%

ISHARES DEX SHORT BD IDX FD

XSB

3,850

CAD

$29.23

$112,535.50

41.3%

ISHARES DEX UNIV BD IDX FD

XBB

220

CAD

$30.29

$6,663.80

2.4%

ISHARES MSCI EAFE INDX FUND

XIN

2,735

CAD

$17.31

$47,342.85

17.4%

ISHARES S&P 500 HEG CAD FD

XSP

2,820

CAD

$13.04

$36,772.80

13.5%

ISHARES S&P/TSX CP CMP IDX

XIC

1,830

CAD

$19.39

$35,483.70

13.0%

Totals


$272,453.41

100%


Discounting money that Harry has withdrawn, he has deposited  $258,033.35. 

Currently Harry’s account is worth $272,453.41, for a gain of $14,420.06 since he started the account (in August, 2008)

So how has Harry fared, compared to the  big balanced funds from The Royal Bank, TD Bank, CIBC, Bank of Nova Scotia and the Bank of Montreal?

Royal Bank Balanced Fund

Royals have always taken advantage of plebeians, right?  And it’s no different with the supremely expensive Royal Bank Balanced Fund, charging 2.25% annually.  If Harry gave them $258,033.35 at the beginning of August, 2008, today it would be down 3.83%.  Do the math, and you can see that if they charged half what they charge, they would be in profitable territory during this time period.  But they aren’t.  Harry’s $258,033.35 with these pricey bluebloods would be worth just $248,150.68.

Harry’s account is worth $272,453.41, so he has beaten them by $24,302.73 over just two years.  You can see details of RBC’s balanced fund performance here

TD Bank Balanced Fund

The TD Bank’s balanced growth fund has done slightly better.  But it’s also slightly cheaper than the RBC fund, so there’s one possible reason.  With annual expenses of 2.11%, it would also be profitable for investors if its fees were half what they are.  But the gouging hurts.  This fund is down 3.42% since August, 2008.  In a comparable comparison, Harry has beaten this fund by $23,244.80.  … more details

CIBC Balanced Fund

With expenses of 2.34% annually, this fund has managed to climb part-way up the mountain, dragging a Volkswagen engine.  But Harry has bounced past it, to the tune of $7,195.13.  If the fund’s fees were half what they are, this guy would be ahead of Harry.  Alas, it’s tough dragging an engine up a mountain—even if you’re a stud.  And it gets tougher with each passing step.  …more details

Bank of Montreal Balanced Fund

Charging a whopping 2.41% annually, this fund is getting left behind by its lighter companions.  Its performance since August 2008 is minus 4.4%, giving Harry a dollar advantage of $25,773.52  …more details

The Bank of Nova Scotia

I’m sure that the Bank of Nova Scotia also offers a balanced fund, but I couldn’t find it.  If one of my readers could do the honors, I’d appreciate it.

To conclude

The high paid Emperors of the big Canadian banks  aren’t wearing any clothes.  With such high fees, their balanced funds are destined to fall further and further behind, each time I compare the results of Harry’s account to their respective funds.

To read more about Harry’s historical reports, please visit my older posts here

And don’t forget:  fees matter.  They really really matter.

 

 

 

Performance Charts

Monthly Performance 2010

Month  

Market Value  

Net Invested  

ROR  

October 2009

$263,621.34

$268,651.99

-1.18%

November 2009

$270,497.49

$268,651.99

2.61%

December 2009

$271,793.49

$268,651.99

0.48%

January 2010

$269,304.39

$268,651.99

-0.92%

February 2010

$272,982.39

$268,651.99

1.37%

March 2010

$277,991.28

$268,651.99

1.83%

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%









Quarterly Performance

Quarter

Market Value  

Net Invested  

ROR  

4th Quarter ’09

$271,793.49

$268,651.99

1.88%

1st Quarter ’10

$277,991.28

$268,651.99

2.28%

2nd Quarter ’10

$258,147.60

$258,651.99

-3.66%

3rd Quarter ’10

$272,722.06

$258,033.35

5.89%


Yearly Performance

Year  

Market Value  

Net Invested  

ROR  

2008

$255,528.62

$288,651.99

-11.5%

2009

$271,793.49

$268,651.99

15.52%

2010 (YTD)

$272,722.06

$258,033.35

4.33%