ETF News and Views
Horizons AlphaPro 60 Equal Weight Index opened for trading on July 14.
Each stock started off at less than 1.7 per cent of the total fund, and the portfolio is rebalanced every three months to restore the equal weightings. This strategy reduces stock-specific risk and also tends to lessen concentration in the heavily weighted financial services and resources sectors.
Source: Rudy Luukko, Toronto Star
In Morningstar's latest ratings of Canadian Equity funds, the top performer over the past three-years is the five star rated Claymore CAN Fundamental Index ETF with a return of -2.0%.
It beat every single professionally managed Canadian Equity fund over this time period and did it with just a 0.65% MER while many managed funds, with much poorer performance, had MER's of 2.00% and more.
Other ETF's, in this category, finishing near the top were the iShares DJ Canada Select Growth Index ETF, which finished in third place and the iShares S&P/TSX 60 Index ETF, with a ninth place finished, followed shortly behind by the iShares S&P/TSX Capped Composite Index.
None of the worst performers in this category were ETF's. They were all professionally managed mutual funds which charged high fees for the priviledge of providing their clients with the lowest returns.
Of course, GIC's beat the three-year returns of ALL Canadian Equity funds.
Source: Toronto Star, July 24, 2010
What I find interesting is that the TSX has had a stronger performance than either the DOW or the main international indexes and yet not one professionally managed Canadian equity fund has managed a positive return over the past three long years.
The only constant is that the management fees continued to be charged and the fund companies continued to extract money from their clients.
Running a mutual fund is a great business. You continue to make money off of your fund holders even while they proceed to make nothing or even lose some.
In other words, over the past three long years, everybody has made money except the fundholders.
Nice work if you can get it!!!
No wonder that the financial services industry is a multi-million dollar business!!
One of the arguments that is often heard about investing in managed mutual funds, not withstanding their high fees, is that the professional money managers, who are managing the funds, will protect you during volatile markets.
Well, how much more volatile could the markets get than during the past three years and yet, in the category of Canadian Equities, an ETF beat all other funds and precious few managers beat other ETF's that also were among the top performing funds.
Not only that, but today's top performing funds could very well be tomorrow's dogs for a variety of reasons including the fact that 'star' managers often transfer from one firm to another.
Which, again, begs the question of why an investor would want to pay high fees to hold managed funds when, over most terms, index products, such as ETF's will outperform and do it while charging much lower fees.
Also, many individual investors think that they can outperform the indexes and the professional money managers, with all of their resources, by picking their own stocks. Even with all of the resources available to them, the professional money managers have a heck of a time outsmarting the indexes.
And so, if you are an individual stock picker, looking to outperform the indexes over the long term, all that I can say is good luck to you.
You're going to need it!!!
Last edited by Belguy; 2010-07-24 at 10:16 PM.
Thanks Belguy. I appreciate your well wishing. I hope you really mean it!
Originally Posted by Belguy
On thing about fund managers it that the herd mentality often influences them. That is why they are so myopic during periods of high volatility. After all, who is going to pay them 2.5% MER to sit on cash! So they are forced to keep trading and trading costs help to eat away at their profits.
The other problem is that when the market tanks, people sell the funds and they are forced to liquidate holding to pay them off. Similarly when the market is buoyant they have to invest the new money coming in. This means that they are selling/buying their holdings at the worst possible times.
You have to cut them some slack when the systems works against them like that.
@Belguy: I think you mean, raises the question"
Originally Posted by Belguy