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Mutual Fund News

Funds that are winners, no matter what the fee


How the cheap and the expensive Canadian stock funds have fared over the long haul.

Do low-fee funds outperform expensive funds because fees eat away at returns over time?


We asked Victor Tan, an analyst at Globe Investor's fund unit, to screen for Canadian stock funds with the lowest and highest fixed management expense ratio (MER), and have at least a 15-year record. He used the latest reported MER. Canadian equity, Canadian focused equity and Canadian dividend and income funds were included in the screen. Segregated, pooled and duplicate funds were excluded, as well as those with less than $25-million in assets, and those sold only to a specific group.


Low-fee funds have a better chance of outperforming and beating the index, but pricey funds can do well too depending on the stock picker.

Eight of the top 15 cheapest funds beat the S&P/TSX total return of 8.7 per cent over 15 years. Two others - TD Canadian Equity and BMO Equity Index - hug the index closely, but posted average annual returns, respectively, of 7.9 per cent and 7.6 per cent after fees.

Two out of the 15 most expensive funds beat that index, while two others came very close to doing so.

Some of the cheap funds that beat the index were in the Canadian dividend and income equity category. These funds invest in securities with regular dividends or distributions, and that has helped returns over time.

PH&N Dividend Income Fund's D-version, which is sold directly to investors, posted an annualized return of 12.1 per cent over 15 years. RBC Canadian Dividend gained an annualized return of 11.4 per cent over the same period.

Among the pricey funds, IA Clarington Canadian Conservative Equity gained an average annual return of 10.3 per cent over 15 years. Leon Fraser & Associates has run that fund since 1950.

AIM Canadian Premier posted an annualized return of 8.9 per cent over the same period. The fund, which focuses on stocks with strong earnings momentum, is run by a team led by manager Clas Olsson at Texas-based Invesco Aim Ltd., a sister company of Invesco Trimark Ltd.

Dynamic Power Canadian Growth, which is run by manager Rohit Sehgal, has an eye-popping MER of 4.09 per cent. That percentage, however, includes a performance fee, and only applies for the year ended June 30. The soon-to-be published MER will not include a performance fee.

Mr. Sehgal has run the fund since 1999. While Dynamic Power Canadian Growth suffered badly during the market collapse in 2008, it has still managed to post a robust annualized return of 8.5 per cent over 15 years.


Assets ($-mil)LatestYTD % rtn% returns (as of June 30, 2009)
Fund nameCategory as of June '09MER(June 30)1-yr3-yr5-yr10-yr15-yr
Canadian stock funds with low MERs
TD Canadian IndexCdn Equity711.30.8417.1-26.3-
BMO Equity IndexCdn Equity368.81.0016.7-26.1-
PH&N Dividend Income-DCdn Div & Incm Equity1,908.81.1117.4-14.9-
PH&N Canadian Equity-DCdn Div & Incm Equity804.81.1220.3-23.3-
PH&N Canadian Growth-DCdn Focused Equity182.51.1816.8-27.8-7.6-
Beutel Goodman Canadian EquityCdn Equity891.41.2011.2-
Mawer Canadian EquityCdn Equity87.81.2014.0-
McLean Budden Cdn Equity Growth DCdn Focused Equity83.21.2518.4-23.8-
Bissett Canadian Equity-FCdn Equity215.51.2718.3-19.5-
Leith Wheeler Canadian Equity BCdn Equity136.21.5011.0-24.5-
Dynamic DividendCdn Div & Incm Equity421.71.583.0-20.7-
Dynamic Dividend ValueCdn Focused Equity385.21.5912.2-28.0-
Scotia Canadian DividendCdn Div & Incm Equity1,983.71.6412.7-18.9-
Trimark Canadian-SCCdn Focused Equity556.11.6512.7-13.4-
RBC Canadian DividendCdn Div & Incm Equity8,520.41.7014.4-15.9-
Canadian stock funds with high MERs
Dynamic Power Canadian Growth*Cdn Focused Equity1,485.14.0928.5-42.5-
Investors Retirement Gwth. Port.-CCdn Focused Equity887.72.9926.5-16.0-
Investors Canadian Equity-CCdn Focused Equity2,205.32.8423.1-27.1-
Investors Cdn Large Cap Value-CCdn Focused Equity2,308.42.8434.1-9.1-
Investors Summa SRI FundTM CCdn Focused Equity1,063.12.8429.5-35.0-7.6-
Northwest Canadian EquityCdn Focused Equity215.12.558.0-18.6-
Tmpltn Canadian StockCdn Equity123.92.5517.6-17.0-4.0-
Renaissance Canadian GrowthCdn Focused Equity178.62.4915.5-26.1-
GGOF Canadian Equity Fund Ltd. MutCdn Equity43.02.4810.1-24.9-
Fidelity Canadian Large Cap-ACdn Equity47.02.4518.5-
Standard Life Cdn Equity-ACdn Focused Equity58.42.4414.2-26.4-
AIM Canadian PremierCdn Focused Equity558.02.437.0-19.5-
Dynamic Canadian Dividend FundCdn Focused Equity896.32.4311.4-28.2-
Dynamic Value Fund of CanadaCdn Focused Equity1,098.62.4320.6-22.60.811.89.68.6
IA Clarington Cdn Conservative EqtyCdn Equity231.42.429.3-20.8-
S&P/TSX composite index15.4-28.3-
S&P/TSX Total Return17.6-25.7-
*Fund's MER includes a performance fee. Base MER was 2.43 per cent.
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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