# Mutual funds discussion



## Babyanne (Apr 18, 2009)

I want to start this discussion to get the opinions of all of the talented investors here. I hope it won't get to heated and that ideas can be shared openly and respectfully Everyone seems to be very pro mutual fund here and I am not. My reason is primarily because the fund manager gets paid even if the fund looses money. Funds, except for a privledged few have lost money over the last little while and to me even with low dollar cost averaging it doesn't make sense. Am I missing something here?


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## FrugalTrader (Oct 13, 2008)

I am not sure that most people here are pro-mutual fund. I agree with you, most are too expensive. I believe that a lot of investors here are pro index ETF as they are cheaper and out perform most mutual funds.


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## lb71 (Apr 3, 2009)

Fund managers will get paid regardless of fund performance, that's the nature of the beast. They are not guaranteeing you anything. You best bet would be to invest in ETFs or in securities directly if you have sufficient funds.

However, mutual funds do have their advantages. If you do not have much money to invest, it could cost you more to invest on your own once you account for trading fees. With mutual funds, you could invest as little as $50 a month (perhaps even less). And there are some funds out there with low MERs (eg TD e-series).


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## Preet (Apr 3, 2009)

You may want to do some research on Francis Chou - he recently gave back all the management fees charged on one of his funds since inception since it has a negative return over a few years. Not the first time he's rebated fees, and he's a well respected deep value manager. More importantly, he is truly different from the herd.


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## Jon Chevreau (Apr 4, 2009)

Anyone see the CBC report last night excoriating both the Canadian mutual fund industry and brokerages? It trotted out the usual consumer advocates and I can't imagine the financial services industry was thrilled about it, least of all mutual fund companies.


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## michika (Apr 20, 2009)

Jon Chevreau said:


> Anyone see the CBC report last night excoriating both the Canadian mutual fund industry and brokerages? It trotted out the usual consumer advocates and I can't imagine the financial services industry was thrilled about it, least of all mutual fund companies.


Did you happen to have a link to this? I'm searching CBC's website however I'm not finding it, or at least I don't think I am.


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## CanadianCapitalist (Mar 31, 2009)

michika said:


> Did you happen to have a link to this? I'm searching CBC's website however I'm not finding it, or at least I don't think I am.


I haven't seen it yet either, but here it is (thanks to Jon D. for the link):

http://www.cbc.ca/sunday/2009/04/041209_3.html


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## Rickson9 (Apr 9, 2009)

Babyanne said:


> I want to start this discussion to get the opinions of all of the talented investors here. I hope it won't get to heated and that ideas can be shared openly and respectfully Everyone seems to be very pro mutual fund here and I am not. My reason is primarily because the fund manager gets paid even if the fund looses money. Funds, except for a privledged few have lost money over the last little while and to me even with low dollar cost averaging it doesn't make sense. Am I missing something here?


My wife and I don't invest in mutual funds. It would have been very difficult for us to build wealth if we did.


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## lb71 (Apr 3, 2009)

Preet said:


> You may want to do some research on Francis Chou - he recently gave back all the management fees charged on one of his funds since inception since it has a negative return over a few years. Not the first time he's rebated fees, and he's a well respected deep value manager. More importantly, he is truly different from the herd.


Unfortunately, these funds are not available to just anyone. You need a minimum investment of $10,000 and to be an accredited investor as defined by the OSC, meaning you need to have a net worth of $1 million and annual income of $200,000.


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## lb71 (Apr 3, 2009)

CanadianCapitalist said:


> I haven't seen it yet either, but here it is (thanks to Jon D. for the link):
> 
> http://www.cbc.ca/sunday/2009/04/041209_3.html


Thanks for the link. I saw the preview for it, but was not able to see the program.


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## lb71 (Apr 3, 2009)

Spoke too soon. The above link is about financial advisors (April 12 broadcast I think). The program last night was about the mutual fund industry. There does not seem to be anything on their site. Hopefully it will be uploaded in the next few days.


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## takingprofits (Apr 13, 2009)

I can't imagine there being any satisfied mutual fund investors - if there still are some currently there certainly will not be if the market moves sideways for the next several years as expected.

Paying fees may not be noticable in a bull market but sure is in a secular bear market.


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## CanadianCapitalist (Mar 31, 2009)

lb71 said:


> The above link is about financial advisors (April 12 broadcast I think). The program last night was about the mutual fund industry.


Oops. Sorry for the error. Please post the link when the story becomes available.


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## Preet (Apr 3, 2009)

lb71 said:


> Unfortunately, these funds are not available to just anyone. You need a minimum investment of $10,000 and to be an accredited investor as defined by the OSC, meaning you need to have a net worth of $1 million and annual income of $200,000.


You do not need to be an accredited investor to buy Chou's funds, but you are correct about the $10,000 minimum. PACs are also available.


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## lb71 (Apr 3, 2009)

My mistake. To purchase directly from them, you do need to be an accredited investor. Otherwise, you have to go through a broker.

http://choufunds.com/accredited_investors.html


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## Antonia (May 2, 2009)

Jon Chevreau said:


> Anyone see the CBC report last night excoriating both the Canadian mutual fund industry and brokerages? It trotted out the usual consumer advocates and I can't imagine the financial services industry was thrilled about it, least of all mutual fund companies.


I heard this Jon (Hi, by the way). It's all a great concern to me as my husband is already plowing our retirement savings (over half depleted during the recent—and possibly ongoing—fiasco) back into mutuals. He is encouraging me to do the same but I will do this only on a $10,000 a month for seven months basis. I want to get back into the market but wish I could do so with some confidence. Is this averaging out a good idea do you think? I'm in PHN Canadian Equities. They have done pretty well since early spring (better than the 1.25% or so I'm currently getting from ING).

Rosina
Fifties Schmifties


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## tojo (Apr 20, 2009)

I keep both an etf/index fund account and a trading account where I do all my stock picks. The etf account is still way underwater since the start of the crash and through the recent recovery. My actively managed account is near full recovery. Needless to say, I'm switching the etf account to stock picks. The mutual funds I'll keep are the bond etf's and high yield bond funds as I don't have the resources to actively trade government and corporate bonds. I'm also thinking about a global dividend etf, but haven't seen one I like.


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## Spidey (May 11, 2009)

I've done a 180 regarding my views on mutual funds. I now invest mostly in stocks, except for low MER index funds. Many funds have very static portfolios so why pay the fees? For example, take dividend funds. If you check the top ten holdings in the more popular funds you will see the same holdings over and over again. Why not just buy the top ten holdings directly? Sure you will lose a little diversification from the rest of the holdings but any potential benefit will probably be made up by saving the MER. For example on a $100,000 portfolio that amounts to between $1100 and $2500 a year depending on the fund. Or, of course, if you have the money, you could choose to buy the top 15 or 20 holdings and you would get a pretty close proxy to the fund.

That being said, it may still be worth using mutual funds for stocks that would be more difficult to track -- perhaps international (I like Mawer) or small cap funds, but for Canadian or US large caps, I would go direct.


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## Robillard (Apr 11, 2009)

If you've got enough capital, statistically you can diversity almost all of the non-systematic risk in a portfolio with between 20 and 50 securities. 

I agree with Spidey. Mutual funds are good (though expensive) way to get some international exposure. After all, a typically retail investor is somewhat limited by the choice of markets in which they can purchase securities. Fortunately, there are a lot of ETFs out there, particularly on the US markets that can achieve that international exposure at lower cost. 

On a related note, I used to trade equity ETFs, specifically EWJ (iShares MSCI Japan index) and EWT (iShares MSCI Taiwan index). The intra-day movements of these ETFs are highly correlated with the rest of the market (particularly the S&P 500). In fact, if you lined up EWJ beside the movements in the S&P 500 for the past three months, you will notice an uncanny correlation.


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## Antonia (May 2, 2009)

Thanks Spidey and Robillard. We have only ever invested in mutuals and perhaps it is time to get our toes wet with stocks. I am so pleased to have found this forum.

Rosina (& Don)
Fifties Schmifties


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## MoneyGal (Apr 24, 2009)

Antonia - just a point of clarification - if you have always invested in mutual funds, you have always invested in stocks. Mutual funds invest in stocks. 

What you are buying when you buy MFs is the manager's pick of stocks which he or she believes, according to the fund's mandate, are most likely to meet the fund's objectives. 

You may be saying that you want to invest in stocks *directly,* as opposed to through the intermediary of a MF manager. 

I hope this point isn't annoying. I was just struck by your separation of mutual funds and stocks.


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## Antonia (May 2, 2009)

Yes, I am aware of the distinction although I may have implied otherwise. We have always invested in mutuals. However, we have never purchased single stocks in any category. After reading this forum, I am sure we will be changing that.  l love your blog and wish I had so much money savvy.

Rosina
Fifties Schmifties


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## Jon Chevreau (Apr 4, 2009)

Not sure if Preet's latest blog merits its own thread but thought I'd start by appending my own blog today to this thread-in-progress. Preet suggests that the stock-picking active managers at the fund companies and most securities dealers prefer "active management" because that's how their bread is buttered. Then he says they "ostracize" the ethical (my word, not his) advisors who put client interests ahead of their own by recommending passively managed index funds or ETFs, which he says almost all academic research finds to be superior to active management.

http://network.nationalpost.com/np/blogs/wealthyboomer/default.aspx


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## CanadianCapitalist (Mar 31, 2009)

I'm not surprised at all that "white hat" advisors who put their clients interest first are ostracized. The investing public has a responsibility here as well. We live in a free country and Canadians should vote with their feet and entrust their money with the "good guys".


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## tojo (Apr 20, 2009)

The average investor faces so much headwind you wonder how anyone can make long-term gains in the market. The expected return on equities, over the long-term is in the order of 7-8%. You factor in inflation, at a conservative 3%, and then the usual 2.5% MER on your typical Canadian large-cap actively managed fund, you are left with a paltry 1.5% long-term return. It is imperative that one takes the 2.5% out of the equation. To pick a fund manager who can give you your 2.5% money's worth over the long term is nothing more than a crap-shoot.


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## Adam (Apr 3, 2009)

I am rather new to the markets.

Maybe this is a stupid question, but what does the fund manager get if your yield is less than 2.5% - or negative at that?

How do they get paid? Do they still take 2.5%?


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## FrugalTrader (Oct 13, 2008)

Adam said:


> I am rather new to the markets.
> 
> Maybe this is a stupid question, but what does the fund manager get if your yield is less than 2.5% - or negative at that?
> 
> How do they get paid? Do they still take 2.5%?


Mutual funds take their fee regardless of how they perform.


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## msimms (Apr 17, 2009)

tojo said:


> The average investor faces so much headwind you wonder how anyone can make long-term gains in the market. The expected return on equities, over the long-term is in the order of 7-8%. You factor in inflation, at a conservative 3%, and then the usual 2.5% MER on your typical Canadian large-cap actively managed fund, you are left with a paltry 1.5% long-term return. It is imperative that one takes the 2.5% out of the equation. To pick a fund manager who can give you your 2.5% money's worth over the long term is nothing more than a crap-shoot.


After inflation and MER, Don't forget about the yearly tax bill actively managed funds like to run up. 
I had a certain fund with $12,000 in it. They managed to run up my tax bill an extra $400 this year from excessive trading, and lose my money at the same time. the buggers.


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## mike_bayer (May 13, 2009)

*Dr. Ken French on Stock Picking - yahoo video*

The same principals hold true for stock picking and fund picking.


http://video.yahoo.com/watch/3916631/10656258


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