# Etf Versus mutual fund



## Joewho (Nov 18, 2015)

Hello everyone,
I am a new poster and happy to find this wealth of information. Recently retired and getting interested in money management and spending! A friend spoke to me the other day about getting rid of his mutual funds and buying an etf. I told him that the maxim was that mutual funds seldom beat the market and the fees were outrageous. But, he showed me a fund that he has and it seems to have vastly outperformed XIU, which i assume is its benchmark, and I am at a loss as to how to answer him. When i look at Google finance, it seems true that the outperformance is there. But, I wonder whether I am missing something. I will send a link to the Google Finance page and will also give you the mutual fund name, in case the link doesn't work. I know from earlier reading that some of you here are quite expert on this question and was wondering whether anyone could show me how to understand this problem.

https://www.google.com/finance?cid=321038093931521

IG FI CANADIAN EQUITY A(MUTF_CA:IGI348)
(This is from Investors Group)
thanks and good to be here
Joe


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## Joewho (Nov 18, 2015)

Joewho said:


> Hello everyone,
> I am a new poster and happy to find this wealth of information. Recently retired and getting interested in money management and spending! A friend spoke to me the other day about getting rid of his mutual funds and buying an etf. I told him that the maxim was that mutual funds seldom beat the market and the fees were outrageous. But, he showed me a fund that he has and it seems to have vastly outperformed XIU, which i assume is its benchmark, and I am at a loss as to how to answer him. When i look at Google finance, it seems true that the outperformance is there. But, I wonder whether I am missing something. I will send a link to the Google Finance page and will also give you the mutual fund name, in case the link doesn't work. I know from earlier reading that some of you here are quite expert on this question and was wondering whether anyone could show me how to understand this problem.
> 
> https://www.google.com/finance?cid=321038093931521
> ...



Hello Again,
Sorry there was a mistake in the previous post. The symbol to which I want to compare the mutual fund is actually XIC. the Canadian capped index. The graph says that XIC lost money since inception, which cannot possibly be right.
thanks joe


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## 0xCC (Jan 5, 2012)

Is it possible that you are looking at total return for the IG fund vs. unit price appreciation only for XIC?

I can't really tell from the link you provided if the IG fund pays a distribution or not. It looks like XIC does pay a distribution and from my rough calculations if the distribution is included in the longer-term annual returns (3-5 year range) they seem to match fairly closely with the IG fund's returns. It seems like the XIC returns probably beat the IG fund's returns by 1%-2% a year if distributions are accounted for. I would expect that the 1%-2% difference would match up fairly closely with the MER of the IG fund. Performance information for XIC can be found here: http://www.blackrock.com/ca/individual/en/products/239837/ishares-sptsx-capped-composite-index-etf


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## Joewho (Nov 18, 2015)

Thanks very much for the reply. I did check out xic. I am trying to paste the screenshot that i took of the mutual fund compared to xic that i found on Google finance, but cannot seem to find the way to do that. 

But, troublingly, on that comparison for "all" or since inception, the IG fund seems to have returned 14.83% in comparison with 2.08% for XIC. I don't believe that can be right, but i believe I have done everything as it should be done. very puzzled at the moment.

Perhaps o can paste a link to that screenshot, as i was able to paste it into a word document. No, no luck with that, either.
thanks joe


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## Eclectic12 (Oct 20, 2010)

Joewho said:


> ... Sorry there was a mistake in the previous post. The symbol to which I want to compare the mutual fund is actually XIC. the Canadian capped index.
> 
> The graph says that XIC lost money since inception, which cannot possibly be right.


Odd ... when I click on the link the only chart I see is for the IG FI Canadian Equity A MF.


You are correct that XIC has not lost money since inception. I took a look at Yahoo's Historical Prices section to compare the Adjust Close start to finish numbers, where the Adjust Closed numbers are supposed to factor in dividends and splits. It says that between Feb 22nd, 2001 and yesterday's close, XIC has gone from $9.45 to $21.08 for at least a gain of 100+%.


When I use the link then plug in XIC as a comparison, it charts as XIC being a bit better than the MF from Sept 7th, 2007 (MF start maybe?) until early 2013. From then on, the MF performs better.


Now the Google finance blurb about it does say the MF "may also invest in securities not included in this index". 
One can only follow the index and the other seems to be saying it will mostly follow the index but may do other things.

I suspect if one digs under the covers of the MF, it is whatever that has deviated from the index that driving the current good performance.


The question is .... what are the managers going to do going forward and is it going to be good for or bad for the fund.
Overall, they seem to have followed the index for about five plus year before doing something that was different than the index which worked in the favour.

Cheers


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## Joewho (Nov 18, 2015)

Eclectic12 said:


> Odd ... when I click on the link the only chart I see is for the IG FI Canadian Equity A MF.
> 
> 
> You are correct that XIC has not lost money since inception. I took a look at Yahoo's Historical Prices section to compare the Adjust Close start to finish numbers, where the Adjust Closed numbers are supposed to factor in dividends and splits. It says that between Feb 22nd, 2001 and yesterday's close, XIC has gone from $9.45 to $21.08 for at least a gain of 100+%.
> ...


My friend tells me that the advisor did say that they got out of Valeant. They also seem to hold a few U.S. stocks. But some questions remain. The diversion between the two on Google Finance seems very large: +14.83 for the fund and -2.08 for XIC. 
And it also seems to be wrong: Because as you mentionned XIC has not been negative during that time period, as you mentionned from the Yahoo search.

What's more, if i am doing it right, Morningstar seems to have the tsx index coming out on top of the mutual fund
http://quote.morningstar.ca/QuickTakes/fund/f_ca.aspx?t=F0CAN05OP5&region=CAN&culture=en-CA

So, although it is often said that mutual funds usually trail the benchmark. I find it difficult to get reliable information to prove that.
Count me confused and happy for any enlightenment
Joe


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## Woz (Sep 5, 2013)

As others have mentioned, what you’re missing is that you’re only looking at price and not considering the dividends that XIC paid.

That being said, IGI348 has outperformed XIC over the past 3 years. If you stretch it back further though XIC has outperformed. It looks to be that IGI348 has more market exposure resulting in bigger ups and bigger downs.


YearIGI348XIC200524.50%27.01%200614.60%16.96%200712.20%9.53%2008-36.30%-32.95%200938.50%34.46%201016.60%17.26%2011-14.00%-8.93%20124.50%6.89%201317.10%12.71%201413.80%10.42%


IGI348XIC1-Year13.80%10.42%2-Year15.44%11.56%3-Year11.67%9.98%4-Year4.61%4.91%5-Year6.91%7.27%6-Year11.62%11.39%7-Year3.03%3.60%8-Year4.13%4.32%9-Year5.24%5.66%10-Year7.03%7.62%


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## GreatLaker (Mar 23, 2014)

XC holds 99.77% Canadian equity.

IGI348 holds 7% US equity and 5% cash.
http://quote.morningstar.ca/QuickTakes/fund/PortfolioOverviewNew.aspx?t=IGI348&region=CAN&culture=en-CA

Cash has outperformed Canadian equity, and US equity has dramatically outperformed the Canadian market, especially when the exchange rate impact is included, which could explain IGI348's recent performance. A more fair comparison would be a balanced equity portfolio of XIC + XAW, compared to the equivalent Investor's Group Canadian and global funds.

Google "spiva canada scorecard 2015" and you will see that very few actively managed funds can outperform their benchmark indexes, especially over longer time periods. For example, less than 23% of Canadian equity funds outperformed their benchmarks over 5 years.

Also "The Arithmetic of Active Management" by William Sharpe really explains the futility of high cost actively managed mutual funds:
https://web.stanford.edu/~wfsharpe/art/active/active.htm

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.

This need not be taken as a counsel of despair. It is perfectly possible for some active managers to beat their passive brethren, even after costs. Such managers must, of course, manage a minority share of the actively managed dollars within the market in question."​
*If only there was some way to know in advance which funds will be the top performers in the future.*


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## Joewho (Nov 18, 2015)

Woz said:


> As others have mentioned, what you’re missing is that you’re only looking at price and not considering the dividends that XIC paid.
> 
> That being said, IGI348 has outperformed XIC over the past 3 years. If you stretch it back further though XIC has outperformed. It looks to be that IGI348 has more market exposure resulting in bigger ups and bigger downs.
> 
> ...


Thanks everyone for the great information. My real point here is that it doesn't seem to be very easy for the average person to verify the claim that mutual funds usually underperform the benchmark. For instance, the point about XIC making payments and the mutual fund not doing so is not an obvious one. Honestly, i would like to learn these things. Also, from where did you get the table? This combined with the apparently differing information from Google Finance and Morningstar makes it very confising and not evident. I suppose that difference might be accounted for by the payouts by XIC. Please excuse me if I am appearing obtuse and difficult but I find it very puzzling and difficult to get.
thanks joe


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## GreatLaker (Mar 23, 2014)

Hi Joewho. Welcome to CMF.



Joewho said:


> My real point here is that it doesn't seem to be very easy for the average person to verify the claim that mutual funds usually underperform the benchmark.


The SPIVA report at this link  shows exactly what percent of mutual funds were able to outperform their benchmarks. And the report by William Sharpe that I linked to above explains why that is true.

It would probably be more effective use of your time to learn the basics of investing than try to compare performance of individual mutual funds over various time periods. Here is some recommended reading:

The Millionaire Teacher by Andrew Hallam (An engaging book that is easy to read.)

Finiki, the Canadian Financial Wiki

Finiki Simple Index Portfolios

Canadian Couch Potato Model Portfolios

Pick one of the Finiki or Couch Potato portfolios that suits your risk tolerance, and you will be well ahead of most investors.


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## Joewho (Nov 18, 2015)

GreatLaker said:


> Hi Joewho. Welcome to CMF.
> 
> 
> 
> ...


Greatlaker, I sincerely appreciate the generous sharing of your knowledge and time. However, I think trying to find out for oneself through the verification of facts, rather than taking someone's word for it, is a useful activity.
thanks Joe


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## avrex (Nov 14, 2010)

*Run away quickly*

Investors Group FI Canadian Equity Series A Mutual Fund has an M.E.R. of* 2.60%*.

iShares S&P/TSX Composite Index ETF (XIC) has an M.E.R. of *0.05%*.

*Answer: *Tell your friend to run away from high-fee mutual funds (like Investors Group) and stick with low-fee ETFs (like Vanguard, iShares).


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## Joewho (Nov 18, 2015)

avrex said:


> Investors Group FI Canadian Equity Series A Mutual Fund has an M.E.R. of* 2.60%*.
> 
> iShares S&P/TSX Composite Index ETF (XIC) has an M.E.R. of *0.05%*.
> 
> *Answer: *Tell your friend to run away from high-fee mutual funds (like Investors Group) and stick with low-fee ETFs (like Vanguard, iShares).


True, it has a high mer. But, it seems none the less to have outperformed the index for the past few years. Now, thanks to our friend earlier, pointing me to this earlier:
Also "The Arithmetic of Active Management" by William Sharpe really explains the futility of high cost actively managed mutual funds:
https://web.stanford.edu/~wfsharpe/a...ive/active.htm

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.

This need not be taken as a counsel of despair. It is perfectly possible for some active managers to beat their passive brethren, even after costs. Such managers must, of course, manage a minority share of the actively managed dollars within the market in question."

we know that the _average_ and probably much higher than average mutual funds do not beat the market. This one did, however, but it is no guarantee that it will do so again.
thanks Joe


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## My Own Advisor (Sep 24, 2012)

Don't sell that fund, many CMFers here are a shareholder of IGM, where IGM is owned by Power Financial (PWF). 

Some kidding aside, some mutual funds in the short-term will outperform the index. The question you have to ask yourself as an investor, will that continue going-forward to cover the fees? If so, continue to hold the fund and hope the fund exceeds the index by over 2% every year on average to cover the fees.


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## Joewho (Nov 18, 2015)

My Own Advisor said:


> Don't sell that fund, many CMFers here are a shareholder of IGM, where IGM is owned by Power Financial (PWF).
> 
> Some kidding aside, some mutual funds in the short-term will outperform the index. The question you have to ask yourself as an investor, will that continue going-forward to cover the fees? If so, continue to hold the fund and hope the fund exceeds the index by over 2% every year on average to cover the fees.


Ha, ha. Actually i own IGM myself, so i should be trying to talk my friend out of changing. This forum has been very helpful to me, though. I know the advice about ETFs but maybe because i don't own any, i wasn't as clear as i could have been on the question. So, i tried to get the figures directly from a comparison of the mutual funds to an index. Not so easy to find the information! But, i was happy to find the arguments here that most mutual funds do not beat the index. Thanks to everyone!
Joe


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## Eclectic12 (Oct 20, 2010)

Joewho said:


> My friend tells me that the advisor did say that they got out of Valeant.


That would be part of it ... then too, if they bought their US stocks when the CAD and USD were closer to on par - the stocks themselves could stay flat where just based on currency exchange rates, there would be a significant gain. 




Joewho said:


> And it also seems to be wrong: Because as you mentionned XIC has not been negative during that time period, as you mentionned from the Yahoo search.


The XIC yahoo numbers as indicated in the post are from Feb 22nd, 2001 - something over six years before it looks like the MF started (or was renamed/merged).

If I use the "Adjusted Close" column - I end up with a 22+% gain (adjusted for splits and dividends).

I suspect the Google chart software is adjusting for splits but not taking dividends into account. If I use the close price, yesterday's close is $21.28 but the Sept 7th, 2007 close price is $86.18. After taking into account the Aug 2008 4 for 1 split, the Sept 7th, 2007 close is $21.54 (higher than today's price). 




Joewho said:


> ... So, although it is often said that mutual funds usually trail the benchmark. I find it difficult to get reliable information to prove that.


The key here is "usually" ... they don't all.

Then too, this MF is allowing stocks from a completely different country so it has a different possibilities for growth/loss than one that is limited to Canadian companies.

It's just like someone critical of an MF manager who is mandated to buy resource stocks whose MF loses out to the larger index when *all* resource stocks are in the tank. He/she might have done a superb job to limit the losses and setup for a future huge gain but since he/she can't buy the winners, it is not a surprise the index does better.


Cheers


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## Woz (Sep 5, 2013)

Joewho said:


> Thanks everyone for the great information. My real point here is that it doesn't seem to be very easy for the average person to verify the claim that mutual funds usually underperform the benchmark. For instance, the point about XIC making payments and the mutual fund not doing so is not an obvious one. Honestly, i would like to learn these things. Also, from where did you get the table? This combined with the apparently differing information from Google Finance and Morningstar makes it very confising and not evident. I suppose that difference might be accounted for by the payouts by XIC. Please excuse me if I am appearing obtuse and difficult but I find it very puzzling and difficult to get.
> thanks joe


I’d agree it’s not easy to verify the claim that mutual funds usually underperform the benchmark. You’d need a large amount of data on a lot of funds. On top of that you can’t verify the claim by looking at only one fund comparison as you’ve done, which the average person tends to do. 

How do you confirm that lottery tickets are a bad “investment”? Do you ask one guy how he’s done playing the lottery? Do you ask 100 people and take the average? How do you account for the people who win gambling are more likely to continue gambling? Most people wouldn’t verify that claim by looking at actual performance. They’d calculate the probability of winning and the expected return and conclude it’s not worthwhile. 

I think It’s similar for people who conclude that higher MERs lead to lower performance. They didn’t cine to that conclusion by looking at actuals. They either took someone’s word for it or they figured that if the benchmark is the average return then the weighted average of all funds has to be the benchmark minus expenses.

As far as comparing the individual fund you’ve mentioned, there are a few easier ways to look at how it’s performing without digging into a fund. If you go to the Morningstar page (http://quote.morningstar.ca/QuickTakes/fund/riskrating.aspx?t=IGI348&region=CAN&culture=en-CA) under the Risk/Rating tab and scroll down to the MPT Statistics. Alpha is how much the fund has outperformed.

Whenever you’re looking at the returns you want to make sure it’s total returns. If you’re only looking at price that’s an obvious hint it’s not the total return. Mutual fund returns are almost always given as total returns.

The trailing returns are usually pretty difficult to compare as they can have different start dates. That’s why it’s better to look at the annual returns (i.e. 2014, 2013, 2012, etc.). They start and end points are obvious.

Lastly the fund prospectus and annual statements are usually good places to get information. That’s where I grabbed the total return data from.


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## GreatLaker (Mar 23, 2014)

Another point to note about IG funds is they are often sold with a "Deferred sales charge". If you sell the fund within 7 years they may charge you a % of your holdings just to sell it. See the section titled How much does it cost in the Fund Facts document. It starts at 5.5% if sold within a year, and even after 5 years they still can charge 4% of the amount just to sell it. The deferred sales charge is not considered in calculating the performance data.


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## 0xCC (Jan 5, 2012)

Woz said:


> I’d agree it’s not easy to verify the claim that mutual funds usually *outperform* the benchmark. You’d need a large amount of data on a lot of funds. On top of that you can’t verify the claim by looking at only one fund comparison as you’ve done, which the average person tends to do.


Did you mean under-perform there?


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## Woz (Sep 5, 2013)

0xCC said:


> Did you mean under-perform there?


Oops.


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## Eclectic12 (Oct 20, 2010)

Woz said:


> I’d agree it’s not easy to verify the claim that mutual funds usually underperform the benchmark. You’d need a large amount of data on a lot of funds. On top of that you can’t verify the claim by looking at only one fund comparison as you’ve done, which the average person tends to do.


Never mind that the one fund picked is allowed to diversity into the American market (where even if the US stock stayed flat, the CAD dropping against the USD means a gain).


Cheers


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## CalgaryPotato (Mar 7, 2015)

There are thousands upon thousand of mutual funds out there. All designed to outperform the market. Most don't. But some do, some always will. You can always find some mutual funds that outperformed over whatever past period you look at. But is that a sign of good management or just the law of averages?

Think about it like this, the last 3 times the Flames won a game, I was wearing my lucky socks. Now clearly, my lucky socks are the key to the Flames winning games. Why, because it happened like that in the past... 

This is what those big disclaimers mean when they say past performance is no indication of future performance. Cherry picking strategies that did work, out of thousands that didn't, doesn't show a lot.

Now I'm not saying some mutual funds aren't better than others. There are some really brilliant fund mangers out there, but if you are going to choose an active mutual fund, over an ETF, choose it because you've researched the strategy and the manager and you really buy into it. Not just because a chart shows that it worked over some time period.


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## The_Tosser (Oct 20, 2015)

CalgaryPotato said:


> There are thousands upon thousand of mutual funds out there. All designed to outperform the market.


Huh? Some are designed to give exposure to specific sectors or classes. Whether they out-perform 'the market' is secondary to their purpose.



> There are thousands upon thousand of mutual funds out there. All designed to outperform the market. Most don't. But some do, some always will.


Really?, please tell us all which ones will always out-perform the market. This seems to be the holy grail some people are looking for.


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## Eclectic12 (Oct 20, 2010)

The_Tosser said:


> CalgaryPotato said:
> 
> 
> > There are thousands upon thousand of mutual funds out there. All designed to outperform the market.
> ...


+1 ... an apples to apples comparison is needed.




The_Tosser said:


> Really?, please tell us all which ones will always out-perform the market. This seems to be the holy grail some people are looking for.


I'll have to find the stats again for Peter Lynch but the high level is from 1977 to 1990 he averaged 29.2% annual return where it was consistently double the S&P500. I seem to recall from an article talking about the funds performance after he left that for something like six years and through two replacement managers, the fund continued to beat the index.


Of course all it takes is a change at the top, a change in the method and the performance can suffer. Then too, if one's not checking the fund performance, one can be in a middling fund for a long time.

Cheers


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## Joewho (Nov 18, 2015)

Eclectic12 said:


> Never mind that the one fund picked is allowed to diversity into the American market (where even if the US stock stayed flat, the CAD dropping against the USD means a gain).
> 
> 
> Cheers


Thanks very much to everyone who contributed to this forum. I learned a lot from this exchange. I know very well that people say that mutual funds on average don't beat their benchmarks. I have never used etfs, except a few for foreign content, so i never looked into the question closely. I know that you cannot prove anything by looking at one mutual fund. The point here was the difficulty in getting information to compare any mutual fund with an etf. The contradiction between google finance and morningstar is hard to get your mind around, for instance. But, many here helped me on this. But, as you cannot really proof anything even with a handful of funds, and even if you could get the right information, it was especially important to get that information on the spivey report and the econemist who calculated by arithemetic that the average fund gets index returns and that with fees, etfs are a no brainer. So, once again, thanks for generously sharing your knowledge to help me through this
Joe


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## The_Tosser (Oct 20, 2015)

Eclectic12 said:


> I'll have to find the stats again for Peter Lynch but the high level is from 1977 to 1990 he averaged 29.2% annual return where it was consistently double the S&P500. I seem to recall from an article talking about the funds performance after he left that for something like six years and through two replacement managers, the fund continued to beat the index.


Lynch is the one guy that comes to my mind, but my feeling is his record was only as good as his 'style' was in favour by the market itself. It seems to me his style went out of maximum favour not long after he left. From what i recall his fund actually went down hill from there. By down hill I only mean it somehow lost its ability to out-perform on the scale it once did. It's been too long for me to recall a whole lot more. 

13 years sound like a nice run, but i have seen some statistical process that suggest for anyone to believe that anyone has an edge re: stock picking, it would take a minimum of 20 years and you wouldn't know who that person was before hand with much conviction. Since most people don't spend a heck of a lot longer than that on a professional stock picking level, what we're saying here is everyone will always be 'suspect'. lol 

At least that is the most safe assumption for those that we can't rule out immediately. 

We could also toss in people like Joel Greenblatt, Buffett and Ben Graham who's styles seem to attract attention in the 'out-perform' arena.


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## Eclectic12 (Oct 20, 2010)

Assuming my memory is correct that the next two managers over the next six years after he left also beat the index, I'm not so sure the style "went out of favour" all that quickly.

I also seem to recall that while his period was a consistent one, none of his years were the best single year.


The other question is with the huge growth in the fund, at some point it's less about investing style and more about "the fund has to put money somewhere". This is where an individual can do better as there's nothing forcing them to be on a schedule or to choose a particular investment. It's one thing to look to invest say 15 million and quite different to have 40 billion.



Cheers


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## The_Tosser (Oct 20, 2015)

Eclectic12 said:


> Assuming my memory is correct that the next two managers over the next six years after he left also beat the index, I'm not so sure the style "went out of favour" all that quickly.
> 
> I also seem to recall that while his period was a consistent one, none of his years were the best single year.
> 
> ...


Yeah i wouldn't argue too strenuously either way about it myself. There's just way too many variables to juggle, which is why i do believe that even 20 years may not be indicative of a whole lot. Certainly it should mean a little something at least.

Personally, I think in these modern times, people who subject themselves to such horrible pieces of 'investing' vehicles (stocks in general I mean) and kind of nuts most of the time. At the very least they don't get out much


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## CalgaryPotato (Mar 7, 2015)

The_Tosser said:


> Huh? Some are designed to give exposure to specific sectors or classes. Whether they out-perform 'the market' is secondary to their purpose.
> 
> Really?, please tell us all which ones will always out-perform the market. This seems to be the holy grail some people are looking for.


Yeah their directive is to follow a specific sector or class, but their goal to make more money than the market in that sector or class is not secondary. 

You seem to be missing my point. There are always some funds that will outperform the market. I guarantee that. I also guarantee you I can't tell you which ones they are.

I can tell you which ones outperformed over the last year, over the last 10 years, or the last 100 years. In 100 years my great-great-great grandchildren can tell you which funds performed best from 2016-2115. But no one can tell you that in 2015.


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## The_Tosser (Oct 20, 2015)

CalgaryPotato said:


> Yeah their directive is to follow a specific sector or class, but their goal to make more money than the market in that sector or class is not secondary.
> 
> You seem to be missing my point. There are always some funds that will outperform the market. I guarantee that. I also guarantee you I can't tell you which ones they are.


So you want to argue your idiocy. OK Fine.

Like i asked in the first post.

Please provide those funds that will outperform - we're all ears.

Oh right, you can't, making your whole premise nothing but a silly comment -exactly what i said that you're now agreeing with.

Ask your self how completely stupid it sounds to make a blanket comment like SOME fund will outperforms the market . NO ****, Einstein. rofl So THAT was your point? lmfao. really?

You just puked words on a page and told us nothing. Thanks for wasting our time. Next time I will know better.



> I can tell you which ones outperformed over the last year, over the last 10 years, or the last 100 years. In 100 years my great-great-great grandchildren can tell you which funds performed best from 2016-2115. But no one can tell you that in 2015.


Just wow dude. You are brilliant. How long did it take you to figure this out?


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## Joewho (Nov 18, 2015)

Hello,
We are still working on this. We are now looking at a couch potato portfolio. The problem is, though, when we look at the couchpotato site and their model portfolios, i am not sure i can believe the returns that they report. Also, over time there is very little difference between an aggressive portfolio and a conservative one. So, why in the world would you get an aggressive model. I will try to post a picture of that chart:

Vanguard







Vanguard


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## OnlyMyOpinion (Sep 1, 2013)

Joewho said:


> ...Also, over time there is very little difference between an aggressive portfolio and a conservative one. So, why in the world would you get an aggressive model...


Good observation! 
That question was responded to here: 
http://canadiancouchpotato.com/2015/04/07/ask-the-spud-do-aggressive-portfolios-pay-off/


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## GreatLaker (Mar 23, 2014)

Joewho said:


> We are now looking at a couch potato portfolio. The problem is, though, when we look at the couchpotato site and their model portfolios, i am not sure i can believe the returns that they report.


What is it about the reported returns that you are not sure you can believe?

On page 2 of the document you posted the author explains the method for calculating the returns. The ETFs used have not been in existence for the entire period of the returns indicated, so the author took the returns of the indexes on which the ETFs are based, subtracted a factor for MER and tracking error, and rebalanced annually to estimate past performance. The CCP site has a good rep for rigorous analysis. If you want to do your own calculations you can see the benchmark index performance at this link (excel spreadsheet): http://libra-investments.com/Total-returns.xls



> Also, over time there is very little difference between an aggressive portfolio and a conservative one. So, why in the world would you get an aggressive model.


Every investment fund will include a disclaimer such as: *Mutual funds are not guaranteed. Values can change frequently and past performance is not indicative of future performance.*

The 1, 3 and 5 year performance numbers for the aggressive portfolio are at least 2 percentage points higher than the conservative portfolio. Over a couple of decades that difference will compound to an enormous amount.

The 10 and 20 year returns are closer for a couple of reasons:

The 10 year equity returns include 2008, when equities performed horribly
The 20 year returns include the 2000-2003 period when equities also performed badly
Bond returns have been abnormally high over the past 20 years because interest rates dropped significantly

This has narrowed the difference between the conservative and aggressive portfolios for the 10 and 20 year returns. Going forward, that difference may be wider, because "past performance is not indicative of future performance".

Take a look at the lowest 1-year return from the last row of the model portfolio page. Which of those lowest returns do you think you could stand in a bear market? That will guide you to how aggressive a portfolio you can live with. Most investors are their own worst enemy, bailing out in a bear market or constantly tweaking the portfolio, buying high and selling low. You really don't know what the markets will do in the future, so choosing a broadly diversified well balanced and low cost portfolio that you can stick with for years is really important.


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