Tag Archives: mutual funds

Two thirds of investors don’t know how much they pay in fees: survey

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JustWealth Andrew Headshot
JustWealth’s Andrew Kirkland

A survey released today by Justwealth Financial Inc. finds a knowledge gap about how much Canadian investors are being charged on their investments: almost two thirds of those surveyed didn’t know exactly how much they paid in annual investment fees.

The survey of Canadians across Canada aged 25 or more was conducted via Google Consumer Surveys, and also uncovered a lack of awareness around upcoming regulatory changes to investment reporting requirements.

The changes surrounding the Client Relationship Model – Phase 2 or CRM2 — will take effect this Friday (July 15, 2016). They are the third annual list of amendments to promote increased disclosure regarding fees and investment performance. According to the Justwealth survey, 65.1 per cent are not aware of the upcoming changes. {See also Graham Bodel’s recent Hub blog on these changes: Big changes for mutual fund investors and Anthony Boright’s Hub blog entitled Get ready for POS3 and CRM2 deadlines.)

Conflicts keep investors in the dark

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Big changes for mutual fund investors

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graham-bodelBy Graham Bodel, CFA, Chalten Advisors

Special to the Financial Independence Hub

Transparency, education and competition should drive better outcomes for investors.

Recent enhancements put in place by the Canadian Securities Administrators (CSA) have sought to better align the interests of investors and the investment industry that serves them.

Initiatives like the Customer Relationship Model (CRM) are designed to increase transparency and help investors make more informed decisions about the kind of advisor with whom they work and the type of products in which they invest.  The idea is that with full disclosure, investors will be armed with the right information to make better decisions and protect themselves from bad products and sales practices.

Banning fund trailer commissions

So, we were somewhat surprised by last week’s announcement by the CSA that indicates they will be moving ahead, subject to consultation with investors and the industry, with banning embedded trailing commissions on mutual fund sales.  It seems even the regulators have lost faith in transparency to properly do the job of protecting investors.  This represents a significant next step in a progression of possible measures, one that regulators in countries like the UK and Australia have already taken. Continue Reading…

Index mutual funds or ETFs?

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patmckeough
Pat McKeough

By Pat McKeough, TSINetwork.ca

Special to the Financial Independence Hub

Index mutual funds can provide a low-cost way to invest in the stock market. However, they have disadvantages and there are better alternatives.

Index mutual funds are among the better financial innovations to come along in the past few decades. These are specialized mutual funds that invest so as to come close to equaling the performance of a market index, such as the S&P/TSX 60.

Index mutual funds do show better long-run performance than more than half of all actively managed mutual funds with long-term track records. That’s partly because index fund fees run around 1.0% of assets per year, compared to 2.5% or more on many broker-sold mutual funds.

One big advantage of index mutual funds is that they can help you avoid the risk of choosing a fund with a management style that virtually guarantees below-average long-term performance.

For example, mutual funds that pursue a trading or sector-rotation approach to investing belong in this can’t-win category. Managers of these funds try to out-perform the market by betting on relatively short-term trends, rather than putting their investors in a position to profit near automatically from long-term growth in the economy. This can work, but only for limited periods.

In any one year, the top fund is often run by a market timer who is having his or her proverbial “day in the sun.” In any one decade, however, the top funds are generally run by conservative managers who focus on long-term growth in the economy.

Spread investments across five main economic sectors

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With $100 billion in assets, can ETFs catch mutual funds?

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An image of a 3d investment strategies funnel chart.My latest Financial Post column can be found in the print edition of Wednesday’s National Post as well as online right now, under the title The market share battle between ETFs and mutual funds is heating up, as Canadian ETFs pass $100 billion milestone.

As noted earlier here on the Hub, the ETF (Exchange-traded Funds) industry recently passed the significant milestone of $100 billion in assets under management. See ETFs break $100 billion milestone in Canada. That’s “Billion” with a B, but is still less than 10% of the $1.1 Trillion (Trillion with a T) that the entrenched and much older mutual fund industry still enjoys.

As an aside, if you have difficulty grasping how big the number “Trillion” is then read a hub post by Ian Campbell: Can you put the number ‘Trillion’ in context?

The FP column asks the question why the huge disparity in Management Expense Ratios (MERs) of mutual funds (i.e. high at around 2.5% per annum) versus ETFs (typically around 0.55% but in some cases as low as 0.4 or 0.5%) hasn’t resulted in even more incursions by the ETF industry into the mutual fund space.

ETF sign is held by businessman.

Powerful bank distribution network

One reason is the entrenched positions of the Canadian banks, whose powerful distribution network (i.e. bank branches)allows them to sell their own in-house no-load mutual fund families. Of course, BMO, RBC and now TD all sell ETFs as well but I doubt you’ll see many recommended by your local friendly branch rep any time soon.

As the old saying goes, mutual funds are sold, not bought. Continue Reading…

Video: the age-old debate of active management vs. indexing

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Screen Shot 2016-05-23 at 3.03.36 PMWhen it comes to investing philosophies, there are two camps that are almost diametrically opposed: so-called “active” security selection practiced by mutual funds, hedge funds and similar vehicles; and the low-cost “passive” approach epitomized by index funds and ETFs.

A good summary of this old chestnut can be found in the latest FWB TV video, which runs just under four minutes. It can be found by clicking on this highlighted link: He said, she said: the active versus passive argument.  In the investment industry, “she” is correct and her name is SPIVA® (S&P Indices Versus Active).

Is Mr. Active telling us the whole story?

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