WHAT ARE WE LOOKING FOR?
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 $25-million in assets, and those sold only to a specific group.
WHAT DID WE FIND?
Low-fee funds have a better chance of outperforming and beating the index, but pricey funds can do well too depending on the stock picker.
Eight of the top 15 cheapest funds beat the S&P/TSX total return of 8.7 per cent over 15 years. Two others - TD Canadian Equity and BMO Equity Index - hug the index closely, but posted average annual returns, respectively, of 7.9 per cent and 7.6 per cent after fees.
Two out of the 15 most expensive funds beat that index, while two others came very close to doing so.
Some of the cheap funds that beat the index were in the Canadian dividend and income equity category. These funds invest in securities with regular dividends or distributions, and that has helped returns over time.
PH&N Dividend Income Fund's D-version, which is sold directly to investors, posted an annualized return of 12.1 per cent over 15 years. RBC Canadian Dividend gained an annualized return of 11.4 per cent over the same period.
Among the pricey funds, IA Clarington Canadian Conservative Equity gained an average annual return of 10.3 per cent over 15 years. Leon Fraser & Associates has run that fund since 1950.
AIM Canadian Premier posted an annualized return of 8.9 per cent over the same period. The fund, which focuses on stocks with strong earnings momentum, is run by a team led by manager Clas Olsson at Texas-based Invesco Aim Ltd., a sister company of Invesco Trimark Ltd.
Dynamic Power Canadian Growth, which is run by manager Rohit Sehgal, has an eye-popping MER of 4.09 per cent. That percentage, however, includes a performance fee, and only applies for the year ended June 30. The soon-to-be published MER will not include a performance fee.
Mr. Sehgal has run the fund since 1999. While Dynamic Power Canadian Growth suffered badly during the market collapse in 2008, it has still managed to post a robust annualized return of 8.5 per cent over 15 years.
|Assets ($-mil)||Latest||YTD % rtn||% returns (as of June 30, 2009)|
|Fund name||Category as of June '09||MER||(June 30)||1-yr||3-yr||5-yr||10-yr||15-yr|
|Canadian stock funds with low MERs|
|TD Canadian Index||Cdn Equity||711.3||0.84||17.1||-26.3||-1.6||5.7||5.5||7.9|
|BMO Equity Index||Cdn Equity||368.8||1.00||16.7||-26.1||-1.6||5.7||5.4||7.6|
|PH&N Dividend Income-D||Cdn Div & Incm Equity||1,908.8||1.11||17.4||-14.9||-3.5||2.0||8.2||12.1|
|PH&N Canadian Equity-D||Cdn Div & Incm Equity||804.8||1.12||20.3||-23.3||-2.1||4.3||6.7||8.9|
|PH&N Canadian Growth-D||Cdn Focused Equity||182.5||1.18||16.8||-27.8||-7.6||-1.4||2.4||6.1|
|Beutel Goodman Canadian Equity||Cdn Equity||891.4||1.20||11.2||-14.0||0.6||5.3||7.5||8.7|
|Mawer Canadian Equity||Cdn Equity||87.8||1.20||14.0||-18.5||0.2||6.7||8.1||9.3|
|McLean Budden Cdn Equity Growth D||Cdn Focused Equity||83.2||1.25||18.4||-23.8||-1.4||3.5||5.4||8.2|
|Bissett Canadian Equity-F||Cdn Equity||215.5||1.27||18.3||-19.5||-3.0||3.5||5.8||9.7|
|Leith Wheeler Canadian Equity B||Cdn Equity||136.2||1.50||11.0||-24.5||-2.5||4.8||8.2||9.6|
|Dynamic Dividend||Cdn Div & Incm Equity||421.7||1.58||3.0||-20.7||-4.7||3.7||5.8||7.3|
|Dynamic Dividend Value||Cdn Focused Equity||385.2||1.59||12.2||-28.0||-4.1||4.7||6.0||8.3|
|Scotia Canadian Dividend||Cdn Div & Incm Equity||1,983.7||1.64||12.7||-18.9||-0.9||5.5||7.7||10.3|
|Trimark Canadian-SC||Cdn Focused Equity||556.1||1.65||12.7||-13.4||-5.2||0.0||3.2||5.8|
|RBC Canadian Dividend||Cdn Div & Incm Equity||8,520.4||1.70||14.4||-15.9||-0.8||5.9||8.5||11.4|
|Canadian stock funds with high MERs|
|Dynamic Power Canadian Growth*||Cdn Focused Equity||1,485.1||4.09||28.5||-42.5||-2.4||8.7||9.6||8.5|
|Investors Retirement Gwth. Port.-C||Cdn Focused Equity||887.7||2.99||26.5||-16.0||-2.7||4.5||4.3||5.8|
|Investors Canadian Equity-C||Cdn Focused Equity||2,205.3||2.84||23.1||-27.1||-5.9||3.1||3.6||5.0|
|Investors Cdn Large Cap Value-C||Cdn Focused Equity||2,308.4||2.84||34.1||-9.1||-1.2||6.2||6.2||6.8|
|Investors Summa SRI FundTM C||Cdn Focused Equity||1,063.1||2.84||29.5||-35.0||-7.6||-1.8||1.3||6.4|
|Northwest Canadian Equity||Cdn Focused Equity||215.1||2.55||8.0||-18.6||-7.7||1.7||4.5||7.3|
|Tmpltn Canadian Stock||Cdn Equity||123.9||2.55||17.6||-17.0||-4.0||-1.3||2.5||5.2|
|Renaissance Canadian Growth||Cdn Focused Equity||178.6||2.49||15.5||-26.1||-2.9||2.1||2.2||6.2|
|GGOF Canadian Equity Fund Ltd. Mut||Cdn Equity||43.0||2.48||10.1||-24.9||-1.3||5.2||6.9||7.9|
|Fidelity Canadian Large Cap-A||Cdn Equity||47.0||2.45||18.5||-25.0||1.5||7.4||8.5||7.3|
|Standard Life Cdn Equity-A||Cdn Focused Equity||58.4||2.44||14.2||-26.4||-1.8||3.9||3.9||7.8|
|AIM Canadian Premier||Cdn Focused Equity||558.0||2.43||7.0||-19.5||-3.5||6.0||6.5||8.9|
|Dynamic Canadian Dividend Fund||Cdn Focused Equity||896.3||2.43||11.4||-28.2||-4.6||4.4||6.9||8.2|
|Dynamic Value Fund of Canada||Cdn Focused Equity||1,098.6||2.43||20.6||-22.6||0.8||11.8||9.6||8.6|
|IA Clarington Cdn Conservative Eqty||Cdn Equity||231.4||2.42||9.3||-20.8||-2.9||4.9||7.3||10.3|
|S&P/TSX composite index||15.4||-28.3||-3.7||4.0||4.0||6.5|
|S&P/TSX Total Return||17.6||-25.7||-0.9||6.6||6.2||8.7|
|*Fund's MER includes a performance fee. Base MER was 2.43 per cent.|
|Source: Globe Investor|
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