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Mutual Fund News

High-cost funds yield uneven returns

rcarrick@globeandmail.com

WHAT WE'RE LOOKING AT

High-cost mutual funds: How have they performed in the past several years?

OUR SCREEN

Widely available funds in all categories with assets of more than $50-million were ranked from highest management expense ratio on down, along with their quartile rankings for the one-, three- and five-year periods to March 31. Quartiles divide funds in a category into four groups, with the first quartile representing top performers and the fourth quartile indicating worst-in-class results.

WHAT WE FOUND

Costs are among the most important factors in choosing a mutual fund. Managers have good years and bad, and even the best of them tend to move on after a period with a firm. Low costs are the one thing you can count on from one year to the next. That said, it's clear from our screen that high fees do not automatically condemn you to terrible returns.

Take a look at AGF Emerging Markets - it's one of the most widely held funds in this screen, with assets of close to $1-billion, and its management expense ratio is a rotund 2.98 per cent. It's hard to complain about the returns, though. They're first or second quartile across the board.

Still, there's a high incidence of disappointing returns from these high-fee funds. Over the past five years, 12 of the top 24 funds on our list have five-year returns that rank in the third or fourth quartile. High fees have weighed even more heavily in the past 12 months, a period in which 16 of the 24 highest-cost funds ranked in the bottom two quartiles.

High fees are common in specialty areas like emerging markets and China equity, where returns can be high enough to make investors indifferent to the cost of owning a fund. Ignoring fees is a mistake, though. For every Renaissance China Plus (high cost, but first quartile for the past one-, three- and five-year periods), there's a Renaissance Global Health Care (high cost and third and fourth quartile all the way).

***

High-Fee Funds with Assets greater than $50 Million
Fund Name Category Assets ($-mil) MER Quartile 1YR Quartile 3YR Quartile 5YR
Excel ChindiaEmerging Markets Equity114.33.87332
Mavrix Balanced Monthly PayCanadian Income Trust Equity78.23.61344
Excel ChinaGreater China Equity99.43.32244
Renaissance China PlusGreater China Equity190.43.19111
Mavrix Dividend & IncomeCanadian Focused Small/Mid Cap Equity80.63.17234
Renaissance Global Health CareHealth Care Equity489.23.14443
AGF Aggressive Global StockGlobal Equity53.33.12321
IG Beutel Goodman Cdn. Small-Cap-CCanadian Small or Mid Cap Equity259.13.12311
Investors Mergers & Acquisitions-AMiscellaneous199.33.11144
Excel IndiaEmerging Markets Equity286.63.07222
Stone & Co. Div Growth Cls Can ACanadian Dividend and Income Equity203.73.06411
AGF Asian Growth ClassAsia Pacific ex-Japan Equity52.63.04332
AGF Global Resources ClassNatural Resources Equity179.93.03311
IG Mackenzie Univ Emerg Mkt Class-AEmerging Markets Equity244.73.03322
AGF European Equity ClassEuropean Equity602.03.01343
Distinction Balanced PortfolioCanadian Neutral Balanced145.73244
AGF China Focus ClassGreater China Equity279.32.99424
AGF Emerging MarketsEmerging Markets Equity911.62.98211
IG Mackenzie Univ US Gw LeadersCl-AU.S. Equity169.42.98412
Tmpltn Emerging MarketsEmerging Markets Equity247.72.98324
Manulife China Opportunities ClassGreater China Equity75.42.97333
AGF Canadian ResourcesNatural Resources Equity295.72.96343
Acuity Canadian EquityCanadian Focused Equity66.72.95133
IG AGF Global Equity-AGlobal Equity81.72.95332
IG AGF U.S. Growth-AU.S. Equity167.52.95421
IG Goldman Sachs U.S. Equity-AU.S. Equity232.72.95444
Acuity Social Values BalancedCanadian Equity Balanced67.92.94122
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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