# ETF vs Mawer



## Flash (Nov 25, 2014)

I have decided that I would like to go into the passive investment side as I would like to use my free time to enjoy the things I like rather than to read reports and do calculations for individual companies.

I was pretty sure I would have went the Vanguard/Blackrock iShares route with VCN/XIC for Canadian and VXC/XAW for outside Canada. However, came across Mawer mutual funds and their performance looks significantly better, especially for the last year or so since the gas prices plummeted.

For example, someone investing in XIC 1 year ago would've lost -8.98%. Canadian Equity Fund MAW106 gained +3.3% according to their performance.

I never really considered MF's since I know their MER is significantly higher (ex. XIC 0.05% vs MAW106 1.21%). However, does MER really matter? MAW106 outperformed XIC by 12.28%. I assume the performance given on Mawer's website is after all the MER's and distributions, so as long as the performance is better, MER does not really matter right?

Some other comparisson
VXC 1 year is 15.98% while their Global and International funds are 15.3%, 17.1%, 21.6% and 23.7%.
XIC 5 year is 4.10 %, while MAW106 is 12.1%. A lot of their other funds are within mid teens, with 10 year around.


Bottom line tho, what are your opinions in regards investing in a Mawer fund vs the ETF route? MER does not matter if Mawer funds keeps outperforming the ETF's right? I know theoretically when one invests into 6 digits and keep adding, the higher MER would keep eating profits, but the return is in percentage too, so while a higher MER does eat more profits, since the fund outperforms it also brings higher profits even for high amounts invested.

Is my logic flawed? Can you share your knowledge/insight into Mawer funds vs Vanguard/Blackrock ETF's?
The only problem I see with Mawer is that I cannot buy/sell it using the brokerage and I would need to open an account with them.


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## fatcat (Nov 11, 2009)

yes, your logic is flawed
past performance is no guarantee of future returns ... etc etc
unless you can beat the market consistently you are better off just buying the market as cheaply as you can because over time mer's will kill you


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## GoldStone (Mar 6, 2011)

Flash said:


> The only problem I see with Mawer is that I cannot buy/sell it using the brokerage and I would need to open an account with them.


This is not quite true. Mawer is available at many brokerages. RBC DI is a notable exception.

As to the rest of your questions, do a forum search. We discussed Mawer ad nauseam.


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## Eder (Feb 16, 2011)

You buy Mawer using Investors Edge...I hate mutual funds but they look good.


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## james4beach (Nov 15, 2012)

With such a wide divergence, there must be some fundamental position they've taken which resulted in this out-performance. It would be good to try and nail down what that was.

e.g. under-weight energy and materials? Over-weight financials? More small caps?

As others have pointed out, yes the past performance is good. There's nothing that tells us if their current thesis (e.g. under-weight resources) is the most profitable action going forward


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## GoldStone (Mar 6, 2011)

Mawer is *always* underweight energy and materials.


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## christinad (Apr 30, 2013)

Mawer Canadian Equity has a 20 year record of beating the index. There is an article on the canadian portfolio manager that suggests it beats the index because it has a value tilt

http://www.canadianportfoliomanagerblog.com/active-funds-exposed/

Personally a 20 year record is good enough for me.


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## james4beach (Nov 15, 2012)

GoldStone said:


> Mawer is *always* underweight energy and materials.


So, there you go. I can almost reverse engineer that result from the chart. They're tweaking the sector weights. Here is how I would argue the Mawer situation. It goes back to a classic story about stock picker newsletters, which I'll restate as "actively managed mutual funds".

You start with 1,000 mutual funds out there. They all think they're smart active managers who will do something intelligent to beat the TSX. They all have a thesis. One of them over-weights energy. Another under-weights energy. One of them triples up on gold exposure. One of them avoids all tech stocks. Another one decides to under-weight all commodities (this is Mawer).

After a few years you look at those 1,000 mutual funds. Many of their theses resulted in poor performance, and now you're down to 500 that are outperforming.

You look again a few years later and now there are only 100 who are outperforming.

Look again a few years later, and only 10 are outperforming. Mawer is one of these... so it gets mentioned a lot, it's all over the forums. We all wonder, WOW look at that performance, they must be geniuses!


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## james4beach (Nov 15, 2012)

And I don't mean it's a bad mutual fund. I'm just pointing out that you could generate 1000 random strategies, and *one* of them will inevitably become a winner.

I probably didn't tell that story right, but the point of the story is that it's really easy to tell which strategy was great in hindsight.


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## Flash (Nov 25, 2014)

fatcat said:


> yes, your logic is flawed
> past performance is no guarantee of future returns ... etc etc
> unless you can beat the market consistently you are better off just buying the market as cheaply as you can because over time mer's will kill you


Funds such as Maw 104 from 1988 is not consistent enough? Or 1991 for the Canadian fund? is MER really a pivotal factor when the funds have provided better returns for 25 years?



james4beach said:


> And I don't mean it's a bad mutual fund. I'm just pointing out that you could generate 1000 random strategies, and *one* of them will inevitably become a winner.
> 
> I probably didn't tell that story right, but the point of the story is that it's really easy to tell which strategy was great in hindsight.


But in the end, they were the ones who outperformed did they not? 



Eder said:


> View attachment 6873
> 
> 
> You buy Mawer using Investors Edge...I hate mutual funds but they look good.


I don't like the idea of MF either, hence why I forgot about Mawer for a while, but while deciding to go for ETF's and simplify my life I remembered them. And I was quite impressed with the performances.

Do discount banks broker charge anything to buy MF's? Like the 9.95 they do for equities per trade? I'd phone them but it's the weekend.


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## avrex (Nov 14, 2010)

christinad said:


> Mawer Canadian Equity has a 20 year record of beating the index. There is an article on the canadian portfolio manager that suggests it beats the index because it has a value tilt
> 
> http://www.canadianportfoliomanagerblog.com/active-funds-exposed/
> 
> Personally a 20 year record is good enough for me.


The final line of the article states....


> ...if you are looking to add a value tilt to your portfolio (in order to increase your expected returns), there are *cheaper ways to do this using low-cost ETFs*, rather than paying for traditional active management.


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## GoldStone (Mar 6, 2011)

Flash said:


> Funds such as Maw 104 from 1988 is not consistent enough? Or 1991 for the Canadian fund? is MER really a pivotal factor when the funds have provided better returns for 25 years?


Canadian Equity fund launched in 1991. The first three guys who managed the fund between 1991 and 1999 are retired. You can't buy their track record.

The current manager is 50+ years old. He is likely independently wealthy, which means that he may not stick around until he is 60 (or even 55).

How confident are you that the next guy will be just as good? That's the bet you are making.


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## christinad (Apr 30, 2013)

I believe questrade is the only brokerage that charges for buying mutual funds. At all the big bank brokerages it would be free.


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## christinad (Apr 30, 2013)

What i plan to do is have zlb in my tfsa and then i have mawer canadian equity in my rrsp. The reason is mawer canadian equity has a higher weght to financials then zlb which is higher in consumer defensive and lower in financials. Then mawer has 0 utilities while zlb has around 10% in utilities. I'm hoping they balance each other. I read utilities are sensitive to rising interest rates which concerns me a little.

I believe i'm losing a $1000 on my small canadian index e allocation which is why i'm not keen on it. I'm still not used to seeing those negative numbers. I guess i have to get used to it.


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## Flash (Nov 25, 2014)

avrex said:


> The final line of the article states....


ETF's are also actively managed are they not? XIC and XAW, how do they get balanced? Are the holdings automatically balanced based on a benchmark? Who sets those benchmarks? I know there are ETF's that are following an index and those are supposely not managed, but I also heard there are MF's who are also not actively managed (which I found weird since originally I thought MF's are always managed while most ETF's are not)

Which would be the ETF's who are par on par with Mawer's performance, therefore returning even more since they have low MER. I am mostly aware only of the big ETF's (Vanguard and Blackrock and BMO).



GoldStone said:


> Canadian Equity fund launched in 1991. The first three guys who managed the fund between 1991 and 1999 are retired. You can't buy their track record.
> 
> The current manager is 50+ years old. He is likely independently wealthy, which means that he may not stick around until he is 60 (or even 55).
> 
> How confident are you that the next guy will be just as good? That's the bet you are making.


That is definitely something to consider.



christinad said:


> I believe questrade is the only brokerage that charges for buying mutual funds. At all the big bank brokerages it would be free.


I was under that impression too. But how do bank brokerages make profit if trading of mutual funds is free? Do they get some kickback from the fund?


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## christinad (Apr 30, 2013)

Just a comment that i changed my mind about zlb as consumer defensive stocks are supposed to be overvalued and one article i read suggested they are entering bubble territory. (Consumer defensive stocks make up 25% of the fund).

I think the brokerages may hope that you will eventually buy stocks. I know for me i hold mostly mutual funds but will start buying etfs. It is true for some people they aren't making any money.

I believe ishares has a value fund if you look at their site.


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## christinad (Apr 30, 2013)

I was just thinking that mawer's big sales pitch (simplified) is that they don't buy stocks that are overvalued. Perhaps this explains their underweighting in consumer defensive stocks and utilities that are overvalued. If managers are guided by this strategy perhaps it matters less who the manager is and more on the methodology they use.

Can you tell its a slow saturday night


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## Flash (Nov 25, 2014)

christinad said:


> I was just thinking that mawer's big sales pitch (simplified) is that they don't buy stocks that are overvalued. Perhaps this explains their underweighting in consumer defensive stocks and utilities that are overvalued. If managers are guided by this strategy perhaps it matters less who the manager is and more on the methodology they use.
> 
> Can you tell its a slow saturday night


It makes sense. I have a guy on another financial forum who does in-depth analysis of fundamentals and valuation, and he never buys a stock that is above it's intrinsic value. They are probably guided by the same premise, basically investing in safe equities and not following the market, but the fundamental of companies.


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## cainvest (May 1, 2013)

Mawer Canadian Equity looks pretty good as far as mutual funds go. A MER of ~1.2% wouldn't be a deal breaker for me if I were looking to build a simple portfolio which included Mawer funds. Hopefully they are following a formula rather than the whims of a fund manager but there is still no promise of good returns, never is. With only 41 holdings (more like XIU-60 rather than XIC-242) they definitely have a specific target, might even impose caps on some sectors. 

While I don't own any Mawer funds I wouldn't raise an eyebrow if a friend said they were planning to buy one, well at least the CDN equity one.


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## james4beach (Nov 15, 2012)

Again I didn't say Mawer funds are bad... totally reasonable to put money into them if you have reason to believe that their strategy/approach will continue to outperform going forward.

There are other mutual funds we've identified on this forum that seem to beat benchmarks despite having a higher MER than an ETF. For instance there are a few "monthly income funds" (really, balanced funds) that beat the simple combination of XIU & XBB

http://canadianmoneyforum.com/showthread.php/59137-RBC-Monthly-Income-Fund


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## christinad (Apr 30, 2013)

One thing that concerns me is if there was a mass exit from mawer balanced due to rising interest rates. Wouldn't that affect mawer canadian which is an underlying fund?

I have to say I prefer buying and selling an etf because i know the price i'm buying and selling at.


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## christinad (Apr 30, 2013)

The etf i believe is comparable is xcv ishares canadian value. Since 2007 mawer has beat it every year except for 2 years. Its mer is on the high side for etf at .56. It does have a 3% 12 month yield so perhaps you could argue that partially makes up for the mawer outperformance.


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## GoldStone (Mar 6, 2011)

christinad said:


> One thing that concerns me is if there was a mass exit from mawer balanced due to rising interest rates. Wouldn't that affect mawer canadian which is an underlying fund?


You should be more worried about Mawer growing too large. The larger a fund grows, the more difficult it is for the manager to beat the market.


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## christinad (Apr 30, 2013)

Thanks Goldstone. I was reading their site and mawer balance only holds 12% but size is something else to consider.

Does anyone know of an etf that holds equal parts american, international and canadian but no bonds? Tangerine funds were the closest i could find but it holds 50% canadian


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## Eder (Feb 16, 2011)

GoldStone said:


> You should be more worried about Mawer growing too large. The larger a fund grows, the more difficult it is for the manager to beat the market.


I think Mawer recently closed one of its funds to new money for this very reason.


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## Flash (Nov 25, 2014)

christinad said:


> One thing that concerns me is if there was a mass exit from mawer balanced due to rising interest rates. Wouldn't that affect mawer canadian which is an underlying fund?
> 
> I have to say I prefer buying and selling an etf because i know the price i'm buying and selling at.


Actually that is exactly the Mawer fund I am interested in, Maw104 Balanced. It contains the Mawer US Fund, International Fund, Canadian Fund, Global small cap and as you mentioned about 31% in Canadian bonds, which is not bad as bonds are good for stability but I believe interest in Canada is only going to go higher in the future. Although I hope and I think the manager will take that into account to continue to outperform.



GoldStone said:


> You should be more worried about Mawer growing too large. The larger a fund grows, the more difficult it is for the manager to beat the market.


Hence why I thought the Mawer Balanced (Maw104) might be a very good option as it has other Mawer funds as it's components. Which I assume those components will perform individually depending on their own fund manager. Altough that makes me think then, what exactly does the manager of Maw104 does, if all it does it contains other Mawer funds which are managed by other managers for the individual fund.



christinad said:


> Thanks Goldstone. I was reading their site and mawer balance only holds 12% but size is something else to consider.
> 
> Does anyone know of an etf that holds equal parts american, international and canadian but no bonds? Tangerine funds were the closest i could find but it holds 50% canadian


At the moment, depending on what other info I find from this thread, I plan to go half Mawer and half ETF's in my TFSA (and outside of TFSA for the extra moneys I have).

For the ETF's, something that you mentioned would be XIC and XAW (or VCN and VXC) in a 1:2 proportion. XAW and VXC contains ~50% US and the rest from other countries. The 1:2 proportion in XIC/VCN and XAW/VXC would give about 1:3 Canadian equities, 1:3 US equities and 1:3 other global equities.

Edit 1: 
Is there a way to find out when a fund manager gets changed? Or is there an announcement ahead of time? 
Greg Peterson works for Mawer for about 14 years and is in finance since 1991 according to his bio. That puts him around what, 50ish? He doesn't look too old so I assume he might be in for several years maybe even a decade or two.

Edit 2:
Regarding Maw104. Since it holds other Mawer funds how is the MER calculated? On their webpage it says 0.96% but when I added all the underlying funds individual MER's I get a result of 1.07%. It does have a 6.3% Cash equivalent holding so not sure how to add that into my calculation.


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## latebuyer (Nov 15, 2015)

*ETF vs. Mawer*

I'm not sure you know that when you initially buy mawer you have to invest 5000. I wouldn't worry about the mer of the underlying holdings. I think i read somwhere they chose to give a discount. I think you'll have to keep an eye on the mawer website for management changes.


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## james4beach (Nov 15, 2012)

GoldStone said:


> Canadian Equity fund launched in 1991. The first three guys who managed the fund between 1991 and 1999 are retired. You can't buy their track record.
> 
> The current manager is 50+ years old. He is likely independently wealthy, which means that he may not stick around until he is 60 (or even 55).
> 
> *How confident are you that the next guy will be just as good? That's the bet you are making.*


This is a really good point, and I resurrected this old thread just to emphasize GoldStone's observation.

I think I got a bit too caught up in the historical performance and lost sight of the critical element -- the fund manager's skill and wisdom. Will the next manager be as good as the past ones? At least Mawer (the company) has demonstrated a history of good management, so that probably speaks to something beyond just dumb luck of landing a good portfolio manager.

But yes it's true that every time the manager changes, you're playing a new game. I keep forgetting that.


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## OnlyMyOpinion (Sep 1, 2013)

james4beach said:


> ... every time the manager changes, you're playing a new game. I keep forgetting that.


Not really. Mawer's _"systematic, disciplined, bottom up investment approach"_ remains intact. It is the company's operating philosophy and not likely to be rewritten by a new manager.
Who do you mean by "manager" - President Michael Mezei? Remember Mawer employs 10 analysts and 12 asset class managers. They operate as a team, not as a 'one manager shop' subject to the whims of the latest whiz kid.

Added: While not the subject of the original post, upon reading through, I suspect you are referring to MAW104 and Greg Peterson as manager of the fund. My earlier comments still apply.


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## dubmac (Jan 9, 2011)

My suggestion is to keep your expectations realistic - MAW104 will not likely "take off" anytime soon. 
it is a balanced fund with a reasonable MER. It is recognized as a solid performer among financial watchers. 
http://www.moneysense.ca/save/investing/mutual-funds/low-fee-mutual-funds/ - have a look at the last paragraph (there are a few other funds available that are D series)


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## capricorn (Dec 3, 2013)

dubmac said:


> My suggestion is to keep your expectations realistic


This is the key part. realistic expectations. I do hope they return 6% over next 15 years. My current retirement plans are counting on it. will have to make adjustments if things appear different in next 5 years.


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## james4beach (Nov 15, 2012)

My parents are thinking of going with Mawer Balanced for a big chunk of their retirement money.

How is Mawer for doing ACB tracking? Will they track it for you? Adjust it for return of capital, reinvested distributions, etc? Do they calculate all of that for you automatically?


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## newfoundlander61 (Feb 6, 2011)

My only holding in my TFSA is the Mawer Balanced Fund - MAW104 and do auto purchases weekly. Nothing wrong with this fund at all and its fees for a balanced fund are lower than most.


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## OnlyMyOpinion (Sep 1, 2013)

james4beach said:


> ... How is Mawer for doing ACB tracking? Will they track it for you? Adjust it for return of capital, reinvested distributions, etc? Do they calculate all of that for you automatically?


I think you know it is ultimately the investor's responsibility. You are the only one who knows if you have a given MF (or etf) in one or more accounts at one or more places, and have bought/sold/transferred etc. That said, you could check with Mawer to see if their Direct Investing or Private Client services accounts include such tracking. I suspect most of us here own through a discount broker and only see the tax slips they issue wrt any MF's/etf's we own.


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## latebuyer (Nov 15, 2015)

I'm considering etfs or mawer balanced for my tfsa. However one thing that concerns me is that interest rates will rise, maybe at a bad time and i will have to pull out. It does seem they will be low a lot longer but who knows how long?


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## AltaRed (Jun 8, 2009)

Why would you pull out? Investing is a long term proposition and there will be lots of ups and downs over a 30-50 investing timeline.


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## agent99 (Sep 11, 2013)

newfoundlander61 said:


> My only holding in my TFSA is the Mawer Balanced Fund - MAW104 and do auto purchases weekly. Nothing wrong with this fund at all and its fees for a balanced fund are lower than most.


I have looked at it several times, but have never bought it. For me, being in retirement, the distribution is low. It appears to rely on equity capital gains to provide growth. It has about 30% in fixed income, but that only provides a small amount of interest income. To withdraw cash for living expenses, I would have to sell - hopefully not in a market downturn.

I suppose it depends on just where you are in life, but I would like to see more dividend and interest income if exposed to risks of equity market. 

I do have a holding in TD Monthly Income, another balanced fund. But that has small minimum purchase and I only use it to park free cash in RRIF until I either withdraw it or buy something else.


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## OnlyMyOpinion (Sep 1, 2013)

agent99 said:


> I have looked at it several times, but have never bought it. For me, being in retirement, the distribution is low. It appears to rely on equity capital gains to provide growth. It has about 30% in fixed income, but that only provides a small amount of interest income. To withdraw cash for living expenses, I would have to sell - hopefully not in a market downturn.
> I suppose it depends on just where you are in life, but I would like to see more dividend and interest income if exposed to risks of equity market.
> I do have a holding in TD Monthly Income, another balanced fund. But that has small minimum purchase and I only use it to park free cash in RRIF until I either withdraw it or buy something else.


I hold a slice of both funds as longer term money (~10 years), both currently DRIP. CTI16 (TD Monthly Income) does pay a bit more than MAW104. Interesting to see that it has outperformed MAW104 by about 2% out to 1yr, but then as you go to 5yrs and beyond MAW104 wins by a large margin (by ~+35%). They are quite different balanced funds since CTI16 is primarily Canadian (the usual banks, etc. with only 5% US equity) while MAW104 is a balanced international fund.
Another monthly income fund I'm familiar with is CIB512 but I don't own it. It has a much higher payout, if income from a balanced fund is a priority, but it's price is flat (sometimes slightly negative depeding on your timeframe) as a result.
As you say, it depends where you are in life and what your plan calls for.


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