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Mutual Fund News

Flagging the funds that beat the composite

rcarrick@globeandmail.com

WHAT WE'RE UP TO

A fresh look at the debate about whether it's better to invest in index funds and exchange-traded funds that provide the returns of various stock and bond indexes, or to buy mutual funds run by managers who use their expertise to choose the best stocks.

TODAY'S SEARCH

It's common to see mutual funds condemned for not meeting long-term index returns on average, but that's hardly fair. After all, fees reduce the returns from index funds and ETFs, just as they do regular mutual funds. Of course, the fees for index investments are much lower.

Here, we screen for Canadian equity and dividend funds that made more than 11.38 per cent annually over the 10 years to Aug. 31, which is the 11.63-per-cent average annual return of the S&P/TSX composite index reduced by 0.25 of a percentage point to account for fees. Note: 0.25 per cent is the management expense ratio of the iShares Cdn Composite Index Fund, an ETF tracking the composite index (the ticker symbol is XIC).

SO WHAT DID WE TURN UP?

First, some context. Globefund.com tells us there are 65 Canadian equity and dividend funds with a 10-year history. As you can see from the screen results, there are 21 funds in both categories that beat the 10-year S&P/TSX composite return, minus the fee for an easily obtainable ETF. It's commonly said that buying the index means you'll outperform a majority of mutual funds, and our screen results bear this out.

But what of the funds that did beat the index? Indexing aficionados admit there are always funds outperforming the major stock indexes, but they counter by saying that past performance is no guarantee of future success. Still, it's worth taking a closer look at our index beaters.

Low fees seem to be a common, though not universal, feature. Several dividend funds made the list, even though they've suffered lately from heavy exposure to the troubled financial sector. Several big fund companies are represented, but there's also a heavy representation of smaller money managers like Mawer, Leith Wheeler and Saxon.

Index-beating funds

As of Aug. 2008
Fund nameCategoryMERNet Assets ('000)10-year % return1-year quartile
SEI Canadian Equity-OCanadian Equity0.12,379,99414.81%1
TD Canadian EquityCanadian Equity2.13,266,57513.78%1
OTG GrowthCanadian Equity1.313.51%2
Fidelity Canadian Large Cap-ACanadian Equity2.563,26612.85%1
Standard Life Cdn Dividend Growth-ACanadian Dividend and Income Equity2.02,088,78412.75%3
Fidelity True North-ACanadian Equity2.41,170,90712.72%1
Leith Wheeler Canadian Equity BCanadian Equity1.5167,01212.59%3
Mawer Canadian EquityCanadian Equity1.2101,55412.58%3
Saxon Stock FundCanadian Equity1.9399,01912.54%4
TD Dividend GrowthCanadian Dividend and Income Equity1.93,013,97212.44%2
BMO DividendCanadian Dividend and Income Equity1.75,053,88912.37%3
GGOF Canadian Equity Fund Ltd. MutCanadian Equity2.558,14512.29%2
PH&N Dividend Income-ACanadian Dividend and Income Equity1.12,584,40312.15%4
RBC Canadian DividendCanadian Dividend and Income Equity1.79,633,75812.00%2
AGF Canada ClassCanadian Equity2.9109,54711.84%3
National Bank Canadian Index PlusCanadian Equity1.622,83611.80%1
PH&N Canadian Equity-ACanadian Equity1.11,037,81711.78%4
BMO EquityCanadian Equity2.32,004,09311.53%2
RBC Cdn EquityCanadian Equity2.04,930,97011.53%2
FÉRIQUE EquityCanadian Equity0.7352,50711.45%3
Scotia Canadian DividendCanadian Dividend and Income Equity1.72,375,53911.44%1

SOURCE: GLOBEFUND

© 2007 The Globe and Mail. All rights reserved.

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