Internet-based rumours are suggesting that the top brass at the Bank of Montreal recently held an important meeting. 

How were they going to deal with Andrew Hallam, the pesky author of Millionaire Teacher?

It was only a matter of time, they figured, before Hallam embarrassed their bank by revealing how much money the Bank of Montreal was making off the backs of honest, hard-working Canadians. 

Hallam was in Canada during November and December, promoting his book.

But after exposing Toronto Dominion Bank, CIBC, and the Royal Bank of Canada, friends suggested that he enter a witness protection program—especially after his CBC radio interview.

Undaunted, Hallam fled to Singapore where he trains under Jason Bourne.  And he files reports, such as the one you’re about to read below:

The Bank of Montreal NB Balanced Fund

BMO sells a balanced mutual fund comprising Canadian stocks (55.84% of the fund), Canadian bonds (39.25%) and cash (4.91%)

Asset Allocation December 31, 2011

Two certified financial analysts run this fund.  Their job is to carefully select stocks and bonds…trading them when necessary to attain a strong return.

If you had invested $10,000 in this fund in January 2002, it would be worth $15,468 by January 13, 2012.

Is that good?  BMO would like you to think so.

But the blokes running the fund would have had more success if they had tossed three hundred darts at the stock and bond listings, bought the dart-selected stocks and bonds, then fled the country to join some hippy squatters in a London Warehouse. 

They could have collected their huge BMO pay checks from a British post office box, staged a life of penury, while enacting a scene from George Orwell’s Down and Out in Paris and London.  Penning their experience in a book would have shed light on the world’s impoverished.  And the investors in their mutual fund would have benefitted from their absence.

The next generation of young investors will (we hope) learn that expensive actively managed mutual funds (such as those sold at the Canadian banks) are great for our banks, but not so great for us.  One such example is little Tyler Benn.

Seven year old Tyler Benn can squash the investment returns of the average investment professional—and he knows it.  He owns a balanced account of “Insect” Funds which he set up with help from his exiled uncle.  Tyler can beat the fund managers at the Bank of Montreal, but he struggles (or pretends to struggle) with the word “index”.

If $10,000 were invested in Tyler’s “Insect” funds 10 years ago, in the same allocation as the BMO NB Balanced Fund, the account would be worth $17,896 by January 13, 2012.

Let’s juxtapose the two results:


Initial Investment,   January 2002

Expenses Per Year

End Value, Jan 13th,   2012

BMO   NB Balanced Fund




e-Series Index Funds

55.84% in   the Canadian stock index

39.25% in   the Canadian bond index

4.91% in   cash

$10,000 split   into the allocations on the left, to mirror the exact allocation of the BMO   NB Balanced Fund



You can see that a combination of “Insect” funds would have easily beaten the returns of the BMO NB Balanced Fund over the past decade, with the indexes coming out 15.6% ahead, overall.

Over an investment lifetime, such a staggering underperformance by the bank’s balanced fund managers could be staggering.

BMO’s balanced fund averaged 4.45% per year, while the combination of indexes averaged 5.99% annually.

If those performance rates were to continue, check out the difference over 40 years:

  • $10,000 making 4.45% for 40 years = $57,060
  • $10,000 making 5.99% for 40 years = $102,469

How Could These Fund Managers Have Done So Poorly?

 When stocks fell (as they did in 2008/2009) these guys should have rebalanced their portfolio.  After all, if the stock markets dropped, and if these guys are supposed to keep roughly 55% of the fund’s money in stocks, then these chaps would have been selling off some bonds to add to their stocks.

Then, when stocks soared in late 2009-2010, these fund managers would have been lightening up on stocks to buy bonds, just to keep their balanced alignment between stocks and bonds.

Such rebalancing in a volatile market (such as what we’ve experienced over the past few years) would have seen a dramatic juice to the returns of their fund.  And it’s not rocket science.  A balanced portfolio is meant to keep a set allocation towards stocks and a set allocation towards bonds.  When the markets shift that allocation, adjustments are needed.

But I don’t think these guys rebalanced.  If they had, their fund would have performed better. 

Three Other Reasons For Their Poor Performance:

  1. The bank profits handsomely from the 1.85% annual fee that it charges this fund’s investors.  This is a tough albatross to overcome.
  2. The fund managers incur additional expenses when they trade stocks and bonds.  This comes out of investors’ pockets, but isn’t counted as part of the MER (expense ratio for the fund).  If these guys were holed up in a London warehouse for a decade, they wouldn’t have incurred these charges.
  3. Fund managers are human.  Their fear and greed often prevents them from making rational decisions.  For example, they may have sold stocks when stocks were falling in 2008/2009.  And they may have bought stocks when they were rising in late 2009.

Is this balanced fund worse than those offered by the other Big 5 Canadian banks?

Not really.

Each of Canada’s Big 5 banks has its flagship balanced fund.  Of the funds that have existed for at least 10 years, how many of them beat a low cost, balanced, indexed alternative?  None.

Check it out here.

How about BMO’s other actively managed funds?  Have some of them beaten their counterpart indexes? 

Of course, some of them will.  But buying an actively managed fund based on its strong historical performance is one of the worst things an investor can do.  Generally, funds that outperform during one period often go on to underperform during the next period.  Nobody has figured out how to consistently choose actively managed mutual funds that will beat their counterpart indexes.

There’s only one reliable indicator of superior future performance:  cost.

The cheaper the fund, the higher the odds are of future success.

And the cheapest funds are…

“Insect” Funds.

How About the Bank of Montreal’s other funds?

If their fund managers had any skill at all, it would prove itself in their home market, with Canadian stocks.

BMO sells three Canadian stock market mutual funds, based on the funds tracked at


1.  BMO NB Canadian Stock Selection

The term “Stock selection” assumes that the stocks within this fund are carefully researched.  But over the past decade, this fund has underperformed the average Canadian stock.  So much for their careful selections. 

In fact, if these fund managers brought hammocks to work ten years ago, bought every stock on the Toronto stock exchange, fell asleep for a decade and woke up, they would have been pretty pleased with their “performance”, even after charging the bank’s customers a 1.9% annual fee for their work.  By staying awake, they did a lot worse.

BMO NB Canadian Stock Selection:  $10,000 invested in January 2002 turned into $14,898 by January 13, 2012

TD e-Series Cdn index:  $10,000 invested in January 2002 turned into $19,671 by January 13, 2012


2.  BMO GDN Canadian Large Cap Fund

After seeing the results of the BMO NB Canadian Stock Selection Fund, the managers of the BMO GDN Canadian Large Cap Fund may be asking themselves an interesting question.  Would we have served Canadian investors better if we had never come to work?  The answer to that question is, yes.

BMO GDN Cdn Large Cap Equity:  $10,000 invested in January 2002 turned into $17,855 by January 13, 2012

TD e-Series Cdn index:  $10,000 invested in January 2002 turned into $19,671 by January 13, 2012


3.  BMO Canadian Equity Class

This is a relatively new fund, launched in October 2004.  But these fund managers are already considering selecting stocks based on horoscope readings.  Whatever they’ve been doing so far hasn’t been working.

BMO Canadian Equity Class:  $10,000 invested in October 2004 turned into $14,121 by January 13, 2012

TD e-Series Cdn index:  $10,000 invested in October 2004 turned into $16,209 by January 13, 2012

Andrew Hallam currently resides in a Singaporean cave… in the jungle… where there are big snakes, wild boars and packs of monkeys with a special taste for bank-hired mercenaries.

Jason Bourne is his neighbour.

To read more about index fund investing, check out his book, Millionaire Teacher.

It’s a thrilla, written near Manila.