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A solid return for ETFs - even with adviser fees

rcarrick@globeandmail.com

What we're looking at

You want a core Canadian equity fund for your portfolio. Could an exchange-traded fund be the right choice?

Our screen

Let's look at the best performers among Canadian equity funds over the past 10 years to see where ETFs stand in the group. One-year results are also shown here so that you can see how these funds have performed during the challenging markets we've had in recent months. You'll also find quartile rankings, which divide funds in a category into four groups according to their returns. First quartile is best, fourth is worst. (Only funds that made the 10-year top quartile are shown here; see the full list online at tgam.ca/cruncher.)

What we found

There are two Canadian equity ETFs with a history going back 10 years or more and they both make the Top 10 on our list. For do-it-yourself investors, this suggests ETFs are a simple, attractive alternative to mutual funds. Remember, traditional ETFs give you the returns of stock indexes minus a small amount for fees. What strategy do competing mutual funds use, and can it be counted on to work as well in the future as it has in the past? You decide.

Investors who are paying for the services of an adviser have a different calculation to make regarding ETFs. Let's use the example of a fee-based account where an adviser layers a fee of 1 per cent of a client's account assets over top of the cost of owning an ETF (measured in our screen through the management expense ratio, or MER).

Now, what if we reduced the returns for the two ETFs in the Top 10 on our list by one percentage point a year to reflect advisory fees? The average annual 10-year return for the iShares S&P/TSX Capped Composite Index Fund (XIC) falls to 6.56 per cent, while the iShares S&P/TSX 60 Index Fund (XIU) falls to 6.46 per cent. Those returns would put both ETFs high up in the second quartile of Canadian equity funds over the past 10 years, which is still quite respectable.

Prefer mutual funds? Then cross-check this screen with Tuesday's list of five-year Canadian equity fund leaders (read it online at http://tgam.ca/CrB1) to find the most consistently good performers.

*****

TOP CANADIAN EQUITY FUNDS: THE 10-YEAR VIEW

As of July 31, 2011
AssetsLatest10 YR Avg10YR1 YR1 YR
Name($ millions)MER% RtnQuartile% RtnQuartile
Leith Wheeler Canadian Equity B123.61.57 8.75114.531
Mawer Canadian Equity156.31.248.69117.301
Beutel Goodman Canadian Equity-D1725.91.537.8219.573
Fidelity Cdn Disciplined Equity-A517.92.497.78113.291
Altafund Investment Corp.53.52.437.70110.672
FÉRIQUE Equity517.60.757.64112.592
iShares S&P/TSX Cap Composite Index1349.10.277.56112.272
IA Clarington Cdn Conservative Eqty379.82.417.51112.542
Desjardins Environment197.62.357.5016.224
iShares S&P/TSX 60 Index10180.70.177.4618.853
Russell Canadian Equity331.77.26111.722
Value Contrarian Canadian Equity2.507.22110.662
RBC Canadian Index649.30.707.20112.602
Mackenzie Saxon Stock Fund-SI262.02.047.2017.714
Educators Growth1.757.05111.532
TD Canadian Index955.10.867.02112.392
Scotia Canadian Index254.60.996.91112.262
Altamira Canadian Index277.60.656.8919.003
RBC Cdn Equity5421.52.016.87112.152
CIBC Canadian Index751.81.126.85112.092
Source: Globe Investor, company websites

© 2007 The Globe and Mail. All rights reserved.

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