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Mutual Fund News

Big funds can afford to cut some slack on fees

rcarrick@globeandmail.com

WHAT WE'RE LOOKING AT

Big, expensive mutual funds. Are they earning their prodigious fees?

OUR SCREEN

Just two qualifications were needed to make today's list. The first was size - only funds with assets of more than $1-billion were included. The second was a management expense ratio above 2.5 per cent, which is quite hefty when you think about it. Imagine grossing 10 per cent in a fund and then having 2.5 per cent taken off the top (fund returns are reported on an after-fee basis, just FYI). You've just lost one-quarter of your gains.

To provide some perspective on the performance of today's funds, one-, three- and five-year quartile rankings have been included. Quartiles divide funds in a category by their returns - first quartile is best, fourth is worst.

WHAT WE FOUND

Think of this edition of the Number Cruncher as an informal investigation into the concept of economies of scale. In mutual fund terms, it suggests that large funds should be cheaper than small funds because they have a larger base of assets over which to spread their costs. Put another way, each unitholder theoretically carries a lighter fee load.

Economies of scale are enjoyed by unitholders of some mega-funds that do not appear on today's list. Take RBC Monthly Income, for example. It's the seventh-largest mutual fund in the land with assets of $7.2-billion and its MER is 1.14 per cent, which compares to an average of 2.42 per cent for its peers in the Canadian neutral balanced category. You could double the cost of owning RBC Monthly Income and it still wouldn't make the cut for today's screen.

Funds have to be big and pricey to make this list, with no apparent economies of scale for investors. What's this mean to their returns? In some cases, like AGF Global Value, high fees and lower-echelon performance go together. In others, as with Investors Retirement Growth Portfolio-A, high fees haven't impeded performance. Oh, wait. Globeinvestor.com shows that the older C version of Investors Retirement Growth Portfolio delivered below-average returns in the 15- and 20-year periods to March 31.

Own some big funds? See if you're benefiting from an economy of scale in terms of the fees you're paying. Remember, big funds can afford to be reasonable on fees.

NOTE

Excel Funds has provided updated information on the fees that were listed for several of its funds in the Number Cruncher chart on April. 27. The management expense ratios for Excel India, Excel China and Excel Chindia are 2.98, 3.19 and 3.34 per cent, respectively.

***

Funds with assets greater than $1-billion, MER greater than 2.5%
Fund NameCategoryAssets ($-Mil)MERQuart 1-yrQuart 3-yrQuart 5-yr
Investors Retirement Gwth. Port.-ACanadian Focused Equity1,017.32.84111
AGF Global ValueGlobal Equity1,307.72.81344
Sprott Canadian EquityNatural Resources Equity1,406.02.81433
IA Clarington Canadian DividendCanadian Dividend and Income Equity1,166.82.72322
Investors European Equity-AEuropean Equity1,002.12.69423
Investors Global-AGlobal Equity1,564.82.69211
Investors U.S. Large Cap Value-AU.S. Equity1,882.22.69222
IG FI Canadian Allocation-ACanadian Equity Balanced1,581.92.68311
IG Mackenzie Maxxum Dividend Gro-ACanadian Dividend and Income Equity1,019.12.68244
Investors Canadian Balanced-ACanadian Equity Balanced1,690.62.68111
Investors Canadian Equity-ACanadian Focused Equity2,438.62.68133
Investors Cdn Large Cap Value-ACanadian Focused Equity2,880.22.68111
Investors Dividend-ACanadian Equity Balanced13,249.42.68132
Investors Mutual of Canada-ACanadian Equity Balanced2,386.32.68332
Investors Summa SRI FundTM ACanadian Focused Equity1,287.52.68133
Allegro Moderate Portfolio-AGlobal Equity Balanced1,282.22.65412
Desjardins Overseas Equity ValueInternational Equity1,033.22.58243
Brandes Global EquityGlobal Equity1,409.52.57444
Investors Real Property-AMiscellaneous3,348.82.56422
Investors Retirement Plus Port.-ACanadian Neutral Balanced1,314.52.56211
AGF Canadian BalancedCanadian Neutral Balanced1,300.52.55431
TD Mgd Aggress Growth Port-IGlobal Neutral Balanced2,241.12.52244
Trimark Select GrowthGlobal Equity1,956.72.52444
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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