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Mutual Fund News

The best of the bank funds

If you want to keep your investments with your bank, check out how some of their core mutual funds have fared

rcarrick@globeandmail.com

The predator known as bank-o-saurus rules the mutual fund world.

Of every dollar invested in mutual funds in this country, roughly 45 cents is accounted for by the Big Six banks. That's up from 25 cents a decade ago, which shows you the banks have been on quite the rampage.

Uncritical, trusting investors are raw meat to the banks, with their branch networks full of sales people flogging the house products.

To help you fight back, the Portfolio Strategy column presents a guide to some of the best of funds sold by BMO Investments, CIBC Securities, National Bank Mutual Funds, RBC Asset Management, Scotia Securities and TD Asset Management.

Between them, the Big Six offer more than 900 funds and fund variations.

Our first step to reducing these offerings to a manageable number is to eliminate segregated funds (generally overpriced funds that are insured against losses if you hold for 10 years), funds priced in U.S. dollars and index funds.

This isn't a knock on index funds, but rather a clutter-reducing measure.

Next, the advanced fund screener on the Globeinvestor Gold website was used to find funds that compare well against their peers in both the medium- and long-term.

Specifically, we sought funds that ranked in the first or second quartile for both the three- and 10-year periods to Oct. 31. Quartiles divide funds in a category into four groups by their returns, and a first or second ranking is right where you want a fund you own to be.

The list was pared down further by eliminating funds that lost money in the past 10- or 15-year periods, that showed a tendency to both win big and lose big at times, and those that were in peripheral sectors like Asia, Latin America, global financial services and such.

If you're building a portfolio of bank funds, stick to the basics.

The master list of funds that made the cut is available online (just go the Portfolio Strategy homepage at http://tgam.ca/EiI, click on this week's column and look for the link). Here, you'll find various lists of top bank funds organized in ways that are relevant to fund investors.

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Rating the families

Fundscope has produced the following summaries of the big bank fund families. Funds were assessed over one, three and five years.

BMO Investments CIBC Securities
Above average performers10Above average performers26
Below average performers18Below average performers53
Inconsistent performers40Inconsistent performers156
Total Funds68Total Funds235
National Bank Mutual Funds RBC Asset Management
Above average performers25Above average performers26
Below average performers17Below average performers38
Inconsistent performers90Inconsistent performers204
Total Funds132Total Funds268
Scotia Securities TD Asset Management
Above average performers7Above average performers66
Below average performers13Below average performers49
Inconsistent performers98Inconsistent performers222
Total Funds118Total Funds337

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Analyst picks

Here are the favourite bank funds of two independent fund analysts.

Morningstar Canada Dave Paterson of Paterson & Assoc.
CIBC Cdn Equity ValueRBC O'Shaughnessy US Value Fund
RBC O'Shaughnessy U.S. GrowthRBC Monthly Income
RBC O'Shaughnessy U.S. ValueTD Canadian Bond
RBC O'Shaughnessy Cdn EquityTD Div. Growth / TD Div. Income
Renaissance Global MarketsBMO Dividend
TD Canadian BondBMO Special Equity
TD Dividend GrowthAltafund Investment
TD Divided IncomeCIBC Monthly Income
TD Ent. and Comms.Scotia Canadian Dividend
TD High Yield Income

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Top mutual funds from Canada's biggest banks

The All-Consistency Team
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
Altafund Investment2.3541-0.227.1
National Bank Mortgage1.671,23423.914.9
RBC Monthly Income1.146,68411.318.3
TD Canadian Equity2.072,7872-3.417.1
TD Canadian Bond1.058,45414.616.4
TD Dividend Growth1.923,3422-2.719.8
TD Shrt-Trm Bond1.052,2541514.9
Notes: These are funds have been among the annual performance leaders in their respective categories in at least five of the past eight years, including 2009. RBC Monthly Income has been a particular star in the Canadian neutral balanced category in the past eight years, with six first-quartile rankings. TD Canadian Equity has managed the same feat in the Canadian focused equity category. Altafund is part of the National Bank-owned Altamira group.
Easy Riders
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
Altafund Investment2.3541-0.227.1
Altamira Income1.0524314.525.4
BMO Monthly Income1.494,78210.55.32
National Bank Mortgage1.671,23423.914.9
NB Secure Diversified1.467914.6 n/a4.2
TD Canadian Bond1.058,45414.616.4
TD Mortgage1.7393814.624.6
TD Short-Term Bond1.052,2541514.9
Notes: All of these funds kept themselves out of the dreaded fourth quartile in each of the past eight years, which means they avoided really bad slumps. Also, they fell into the third quartile no more than once in the past eight years. TD Short-Term Bond set the pace by never once falling below the second quartile in the past eight years. Altafund was the only equity fund to make this list.
Bear Tamers
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
BMO Asset Allocation2.0197611.825.2
RBC Monthly Income1.146,68411.318.3
Notes: This pair of funds in the Canadian neutral balanced category lost a bit more than 11 per cent in 2008, which is close to 5 percentage points less than the average for their peers. Most other bank funds examined for this exercise had losses that were in line with their category average or worse. Both of these funds hold stocks as well as bonds, which explains why they lost money last year.
Bear Busters
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
Altamira Income1.0524314.525.4
National Bank Mortgage1.671,23423.914.9
NB Secure Diversified1.467914.6 n/a4.2
RBC Cdn Shrt-Trm Income1.192,51924.224
Scotia Mortgage Income1.23002424.2
TD Mortgage1.7393814.624.6
TD Short-Term Bond1.052,2541514.9
Notes: While the S&P/TSX composite was plunging 33 per cent last year, these bond and mortgage funds all gained 5 per cent or more. The two top names: National Bank Secure Diversified and TD Mortgage, were both up in the mid 7-per-cent range.
Bear Food
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
BMO Special Equity2.372851-1.729.2
Altamira Quebec Growth2.35141229.3
Scotia Resource2.331242-2213.2
TD Canadian Equity2.072,7872-3.417.1
Notes: These funds all lost 42 to 48 per cent of their value in 2008, which is a quite the blow. Long-term investors have made out just fine, though. Compound average annual returns for the 10 years to Oct. 31 are in all cases better than the comparable benchmark index.
Funds To Look At No Matter Where You Invest
MER Assets 3-Yr 3-Yr 10-Yr 10-Yr
Fund (%) ($-mil) Quartile Rtrn Quartile Rtrn
National Bank Small Cap2.3550913111
RBC Canadian Dividend1.79,1461-1.919.1
RBC Glbl Precious Metals2.0476816.9123.9
Notes: These are noteworthy funds that haven't already been mentioned. They're not a slam-dunk for your portfolio. You have to do some research to see if they fit your needs and risk tolerance. That said, each has a good enough long-term record to merit consideration by any investor who uses funds, not just clients of the banks that offer them.
Note: All returns are a percentage %
(Source: GlobeinvestorGold)

© 2007 The Globe and Mail. All rights reserved.

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