# Mawer versus ETF Couch Potato Portfolio



## Belguy (May 24, 2010)

Which of the following two portfolios would you select based on both performance and cost?

Mawer Portfolio:

40% Mawer Canadian Bond Fund

20% Mawer Canadian Equity Fund

20% Mawer U.S. Equity Fund

20% Mawer International Equity Fund


OR:


ETF Couch Potato Portfolio:

40% VSB

20% VCN

20% VUN

20% XEF


These are the only two choices--no substitutions or additions please.

Thank you for your response.


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## Synergy (Mar 18, 2013)

Option 2 - ETF Portfolio


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## Video_Frank (Aug 2, 2013)

Option 2 - ETF. It looks close to my portfolio.


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## Sasquatch (Jan 28, 2012)

Option 1 - MAWER

I'll let MAWER worry about the everyday mundane things like picking when and what to buy and sell or when and how to re-balance etc. etc. I used to do all of this myself one time but don't care for it any more  ..... Now, I just rake in the money LOL


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## Belguy (May 24, 2010)

With either portfolio, you would still have to periodically rebalance to maintain your original target allocations.


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## MoreMiles (Apr 20, 2011)

Belguy said:


> With either portfolio, you would still have to periodically rebalance to maintain your original target allocations.


You can use Mawer Balanced Fund then there is no such problem. 

I would pick Mawer too... one T-Slip at the end of year and not 5 to 10 yak.


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## GoldStone (Mar 6, 2011)

MoreMiles said:


> You can use Mawer Balanced Fund then there is no such problem.


Not only that, Mawer Balanced is cheaper than portfolio #1.


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## EndersGhost (Jan 20, 2014)

I personally chose Mawer Balanced over an ETF portfolio. The reasons are all over these forums in various threads, and are well documented. Your case I'm not so sure, you say no substitutions, so Mawer balanced is out (which is superior to what you have imo). In this case, you are eating a higher MER with your mix. I think it's a bit of a toss up. You are also losing out on some of Mawer's big winning funds (new canada and global small cap).


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## uptoolate (Oct 9, 2011)

Option 2


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## leeder (Jan 28, 2012)

Option 2 is preferable mainly because it's cheaper even if you include the typical trading commissions. While some of the Mawer products have outperformed the index, there's no guarantee that it will in the future. In addition, I'm not quite sure what, if any, are the fees for selling the Mawer products.

The only reason why one would go for a mutual fund is if one contributes to the funds monthly and the discount brokerage does not allow for commission free ETF purchases (e.g., Questrade).


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## Belguy (May 24, 2010)

I have a problem with the Mawer Balanced Fund!

I would be paying a MER of just under one full percentage point for a fund that has an allocation of 30 per cent to bonds. Compare that to the MER of VSB which is 0.17 per cent!

Why should I pay such a premium in fees to hold the bond allocation especially when bond returns are so low currently?

Also, as mentioned, my bond target asset allocation, considering my age etc., is 40 per cent, not 30 per cent or whatever percentage is decided by the fund manager at any given time.

I have often read that a balanced fund is not a good idea because of the premium management fee that you pay on the bond portion of the fund which should be of even greater concern in this day and age of low bond yields.

If anything, I think it would be better to invest in a combination of VSB plus a portfolio of either the geographically diversified Mawer equity funds or VSB plus a suite of geographically diversified equity ETF's such as those mentioned.


Does this make sense?


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## wendi1 (Oct 2, 2013)

Depends. If I had $2000 only, I would buy a balanced fund, just so that the transaction costs would be small. 

If I had $20000, I would buy the etfs. Fees count.


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## Synergy (Mar 18, 2013)

EndersGhost said:


> I personally chose Mawer Balanced over an ETF portfolio. The reasons are all over these forums in various threads, and are well documented.


There's also "reason all over these forums in various thread" to select an ETF portfolio over a low fee MF portfolio such as Mawer balanced, etc.


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## Belguy (May 24, 2010)

However, when it comes to the equity component of the two portfolios, I might be prepared to consider a suite of the Mawer equity funds over the listed ETF's if the Mawer equity funds have a long enough track record of consistently beating the indexes.

Or, would you overlook that, for whatever reasons, and just stick with the ETF's?


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## Synergy (Mar 18, 2013)

What happens if / when the track record changes directions? Personally I'd be happy to stick with the ETF's.


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## Belguy (May 24, 2010)

Mawer Canadian Equity: MER 1.21%, 5 yr. return 16.2%

XIC: MER 0.27%, 5 yr. return 12.4%

XIU: MER 0.18%, 5 yr. return 11.36%

Which way would you go--the ETF route or the Mawer Canadian Equity route for your Canadian equity allocation, recognizing that mutual fund managers change and that past performance is no guarantee of future results.

Still, a five percent difference in performance does add up to quite a difference in change over the long run. This is a management team that does seem to be adding value for the higher fee being charged.

By the way, VCN's management fee is 0.12%


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## EndersGhost (Jan 20, 2014)

Synergy said:


> There's also "reason all over these forums in various thread" to select an ETF portfolio over a low fee MF portfolio such as Mawer balanced, etc.


I never said there wasn't. My comment was simply stating that I chose Mawer, and that he can find reasons for it in various threads. AKA I'm not going to repeat it all, that's all it meant.


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## Synergy (Mar 18, 2013)

EndersGhost said:


> I never said there wasn't. My comment was simply stating that I chose Mawer, and that he can find reasons for it in various threads. AKA I'm not going to repeat it all, that's all it meant.


Agreed. I just wanted to point out that one could also find reasons to choose EFT's over Mawer.


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## EndersGhost (Jan 20, 2014)

Belguy, I recently went through this exercise as well. I think ultimately it is a decision of Active vs passive management. There are people who absolutely detest active management and think it can never work, and that passive is the only way. I don't personally believe that, and I think "value mutual funds" like Mawer do have a place. If they take 0.7% more off the top but produce 5% more in my pocket, why should I care? Now, the reasons of passive are well documented, and the math shows that as funds get too big, they start to fail. Can this happen to mawer? Absolutely. Will it happen? Probably. When? Your guess is as good as mine, but I'll see how long I can go getting better then average returns before I punt them. Personally, I believe that if they do not beat the index, it won't be by much, and I can move to an ETF strategy at that point. It should be worth noting that Mawer is the only mutual I would actually consider buying. It seems to be getting more attention now, so I'm going to watch if there's an influx of money if it hurts them in producing.

Edit: It also comes down to you as an investor too, and how much control you want etc. My wife wanted mawer as it saves her from worrying about currency conversion (there's new ETFs starting to mitigate this), rebalancing, etc.


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## GoldStone (Mar 6, 2011)

Belguy, stick to your couch potato ETF portfolio.

Why, all of a sudden, are you looking at Mawer?

Me thinks you are chasing performance. That's a recipe for disappointment.

The moment you switch from ETFs to Mawer, Mawer will have an average year where they trail the indexes. Knowing you, you will be looking to switch back in no time.


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## Synergy (Mar 18, 2013)

Belguy said:


> Mawer Canadian Equity: MER 1.21%, 5 yr. return 16.2%
> 
> XIC: MER 0.27%, 5 yr. return 12.4%
> 
> ...


That's a tough call, the Mawer returns are enticing (but I agree with GoldStone ^). I'd likely go with XIC - a little more diversification then XIU.

XIC vs. XIU
http://www.dividendninja.com/xic-vs-xiu/


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## dubmac (Jan 9, 2011)

EndersGhost said:


> I personally chose Mawer Balanced over an ETF portfolio. The reasons are all over these forums in various threads, and are well documented. Your case I'm not so sure, you say no substitutions, so Mawer balanced is out (which is superior to what you have imo). In this case, you are eating a higher MER with your mix. I think it's a bit of a toss up. You are also losing out on some of Mawer's big winning funds (new canada and global small cap).


a 
Agree ith this comment ...MAW104 (Balanced) is an excellent product - and it has 10% Mawer New Canada Fund. The challenge for MAwer however, as some one on this forum, is for Mawer to maintain their performance - which is not guaranteed. SOmeone here suggested that as funds like MAwer get larger, their ability to perform well decreases. But, as long as their MER's are low, and they can perform as well as they have, I'm a believer!
I invest in MAWER in my RRSP's, and variations of the couch potato stategy in our investment pf's.


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## EndersGhost (Jan 20, 2014)

GoldStone said:


> Belguy, stick to your couch potato ETF portfolio.
> 
> Why, all of a sudden, are you looking at Mawer?
> 
> ...


I agree with Goldstone on this one for the most part. If your already in ETFs and they are returning, then it probably makes sense to stick with it. I'm just starting out, and it's very easy to get caught up looking at past numbers. When I've looked at some sector ETFs or even stocks and look at past performance it's very easy to go "oh this looks great". But really you are already chasing that performance. It's not going to be good over time to chase performance. One thing that I think CCP states, as well as many others is conviction in your strategy. If you have your asset allocation, and you are happy purchasing ETFs then sticking with it long term should pay out well. Sure you can always look after the fact and say X returned better than Y, but there's no way of knowing ahead of time. As I spend more time understanding stock prices, etc, it's very clear to me how the average is a great strategy. Unless you are really good (and have some luck), I think making the right choices can be tough! One thing to note: I noticed mawer is light in mining, and I think that's helped them with returns over the average. But if Mining picks up again (we are looking long term right? It's not going to disappear), then maybe mawer will start to fall short. Again, I can't be sure, but just using it as an example. In short, in my short period of learning, I'm finding that chasing performance is great at creating headaches more then it is at solving any challenges.


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## EndersGhost (Jan 20, 2014)

Dubmac - I believe continuing to perform is more tied to market cap. As your market cap grows over 1 Billion, it's a lot harder to make shifts in the portfolio, which causes it to lose some of it's agility in being active. The MER simply helps to cover that up, but it won't make it go away.


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## Synergy (Mar 18, 2013)

EndersGhost said:


> One thing to note: I noticed mawer is light in mining, and I think that's helped them with returns over the average. But if Mining picks up again (we are looking long term right? It's not going to disappear), then maybe mawer will start to fall short. Again, I can't be sure, but just using it as an example.


That's a good observation. If you do a YTD comparison of XIC vs Mayer CDN equity you'll notice how XIC has outperformed by about 2.3%. Which appears to corresponds with a jump in some of the miners YTD - especially gold. Granted I haven't looked at any of the weightings so I'm only guessing here. However, Mawer could slowly increase it's allocation towards mining and thus continue on it's course of out-performance.


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## GoldStone (Mar 6, 2011)

Synergy said:


> However, Mawer could slowly increase it's allocation towards mining and thus continue on it's course of out-performance.


Mawer Canadian Equity won't chase mining stocks. They don't change their investments year to year based on tactical considerations. Their turnover is low.

AFAIK, Mawer avoids mining stocks altogether because they are too volatile. Mining stocks go through boom and bust cycles. Buy and hold doesn't work well with them. You have to trade them. Mawer doesn't trade.

I mentioned this before:

Mawer Canadian Equity underperformed TSX in 4 out of 10 recent years. My guess is, they trail TSX when resource stocks have a great year. If you are going to own Mawer Canadian Equity, you have to understand what's going on and stay patient.

Studies show that the most volatile stocks underperform the broad market long term. The math is stacked against them. A volatile stocks that drops 50% has to rise 100% just to break even.


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## uptoolate (Oct 9, 2011)

EndersGhost said:


> Dubmac - I believe continuing to perform is more tied to market cap. As your market cap grows over 1 Billion, it's a lot harder to make shifts in the portfolio, which causes it to lose some of it's agility in being active. The MER simply helps to cover that up, but it won't make it go away.


That's one factor. Another is 'mean reversion' which has very few funds which had above average performance continuing to have above average or even average performance, hence the disclaimer 'past performance does not guarantee future results'.


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## My Own Advisor (Sep 24, 2012)

I like XIU. Held it for a few years.


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## dubmac (Jan 9, 2011)

EndersGhost said:


> Dubmac - I believe continuing to perform is more tied to market cap. As your market cap grows over 1 Billion, it's a lot harder to make shifts in the portfolio, which causes it to lose some of it's agility in being active. The MER simply helps to cover that up, but it won't make it go away.


Not sure, but I think MAW104 already has a cap of 1 Billion now!
I'm happy if it it beats the index - but I think I'd also be content if it manages to stay close to the index in performance as well - as long as it doesn't underperform!


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## EndersGhost (Jan 20, 2014)

Agreed Dubmac - I'll be watching it, but I'm hopeful they will have decent returns. If it's starting to look bad, I'll assess it then. What I need to ensure I don't do is change every 3 months because "something else looks good" so to speak. They seem to do much better than indexing in down turns. I think that's what Goldstone meant by saying on holding it "for a full cycle".


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## OurBigFatWallet (Jan 20, 2014)

EndersGhost said:


> I agree with Goldstone on this one for the most part. If your already in ETFs and they are returning, then it probably makes sense to stick with it. I'm just starting out, and it's very easy to get caught up looking at past numbers. When I've looked at some sector ETFs or even stocks and look at past performance it's very easy to go "oh this looks great". But really you are already chasing that performance. It's not going to be good over time to chase performance. One thing that I think CCP states, as well as many others is conviction in your strategy. If you have your asset allocation, and you are happy purchasing ETFs then sticking with it long term should pay out well. Sure you can always look after the fact and say X returned better than Y, but there's no way of knowing ahead of time. As I spend more time understanding stock prices, etc, it's very clear to me how the average is a great strategy. Unless you are really good (and have some luck), I think making the right choices can be tough! One thing to note: I noticed mawer is light in mining, and I think that's helped them with returns over the average. But if Mining picks up again (we are looking long term right? It's not going to disappear), then maybe mawer will start to fall short. Again, I can't be sure, but just using it as an example. In short, in my short period of learning, I'm finding that chasing performance is great at creating headaches more then it is at solving any challenges.


I agree. It's easy to chase past performance and Mawer has done well in the past especially in a downturn. Conviction is important because switching from one strategy or product to another can result in unnecessary fees which can really add up over time. If everyone sees a great past performance and they try to chase it they'd all be disappointed if that product started to have average returns or worse. With that being said I think diversification is important no matter what specific strategy is used


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## PharmD (Dec 21, 2011)

I would go with A, but I do not think that the deciding factor would be performance or price. The primary benefit that Mawer provides is planning and investment advice as well as a restraining hand. 

Yes, investing is fairly simple, but if you look at the gap between the funds people invest in and peoples actual return it's pretty clear that investor behaviour is a major drag on returns. If the people at Mawer encourage people to do the right things with their money I think that is much more valuable than any actual performance advantage which may or may not exist going forward. There are other benefits such as clear reporting when I would guess the majority of DIY investors have no idea how they are really doing.

Other than my pension and some company matched stocks from my workplace I am 100% invested with Steadyhand so this is not abstract for me, but something I have acted on after thinking a lot about.

Everyones situation is different, but I think that it is important to remember that dealing with a company like Mawer is quite different from dealing with a discount brokerage.


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## james4beach (Nov 15, 2012)

There's an old story in the investment world.

You start with 100 guys, each of whom has a different investment strategy. After a couple years maybe 50 of them are beating the index. After another couple years, maybe 20 are still beating the index. By this point these guys are making a bigger fuss about how great they are.

After another couple years, you've only got 10 guys left who are beating the index. They are starting to look like geniuses (and of course we've discarded the other 90 whose returns sucked).

Now about a decade into the game and maybe 1 or 2 guys out of the original 100 are left who have steadily beaten the index. Everyone is crowding around them, singing their praises, and putting their faith in these managers.

*Think about this:* the fact that they (Mawer) have outperformed, is it necessarily a sign of better strategy or smarter approach? In the story, you could have started the game with 100 pretty random investment strategies. Over time, one of them would stand out as the winner... even if the strategies were random.

In other words even if you started with 100 amateurs or novice investors, eventually one would stand out as seemingly great.

I agree Mawer's returns have been good, but one should keep this story in mind and not place excessive faith in them continuing to beat the index perpetually. Others have pointed out that Mawer has under-performed the index in many calendar years.


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## james4beach (Nov 15, 2012)

The story I mention is usually told as a con artist's game to make himself look like a genius stock picker.

He starts with 100 pseudonyms. Each of his identities runs a newsletter and makes (random) stock picks. Of these 100 newsletters, most of them have terrible stock picks but over time, he remains with one pseudonym/identity that is making GREAT stock picks by chance. The other 99 have become worthless.

Now he demands huge fees for people to subscribe to his newsletter to learn his genius stock picks.

Anybody can run this game


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## wert (Jan 26, 2014)

Or place a $10 bet on each NHL team to win the cup. Do it each year for 10 years and people will all hail you a genius as you had a perfect record of picking the winner. Frame the winning bets above your desk... great conversation starter


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## dubmac (Jan 9, 2011)

james4beach said:


> .
> Anybody can run this game


James - I sense some caution in seeing Mawer as "the next great choice" among fund families. 
Is Mawer any better than other MF companies? not necessarily - but they offer a good (in retrospect), low fee balanced fund which has produced good returns. Carrick writes a good article on the fund. There will always be risk - as there is in your con artist example above. But mawer is seens a a good choice along with steadyhand, beutel goodman and PH & N, and park money in some a balnced fund composed of several products (bonds, not just stocks chosen by stock pickers). The last few paragraphs in carricks article are prescient ones.
http://www.theglobeandmail.com/glob...ost-fund-families/article16788300/?cmpid=rss1


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## GoldStone (Mar 6, 2011)

Rick Ferri said something along the lines:

_Two factors determine your long term returns. The first one is the split between stocks and bonds. The second one is how you behave in the time of crisis. Everything else is the colour of the icing on the cake._

When we discuss active fund managers such as Mawer, I think it's important to draw a distinction between two portfolios:

*1. A portfolio of individual active funds where the investor is responsible for asset allocation and rebalancing.*

This portfolio doesn't make any sense to me. The funds may or may not outperform the indexes. You are paying active management fees, but you are still responsible for the most crucial decisions (asset allocation and rebalancing). You can easily do something stupid, such as: change your asset allocation to chase performance, sell low instead of buying low, etc.

If you are going to take responsibility for asset allocation and rebalancing, use low cost passive products.


*2. A portfolio comprised of one low cost balanced fund.*

I strongly believe that a low cost balanced fund can easily add value to justify active fees. The value doesn't come from stock picking. It comes from executing a disciplined strategy. The balanced fund protects you from making stupid mistakes.


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## james4beach (Nov 15, 2012)

I don't mean to detract from Mawer too much and their balanced fund looks pretty good, with low fees.

What I was trying to get at is that when you have a zillion mutual funds out there (as we have), inevitably someone is going to have great performance even by dumb luck. If it wasn't Mawer, it would be someone else.

The company seems legit, I don't think they're a fraud. I think they probably are using sensible investment methodologies. However one should not place too high expectations on them continuing with this kind of outperformance over time. It's not time to get rid of all your index funds.


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## GoldStone (Mar 6, 2011)

james4beach said:


> It's not time to get rid of all your index funds.


While I don't disagree, I remain convinced that a low cost balanced fund is the best solution for most people outside CMF. (and for many CMFers too!)

Here's why:

Vanguard S&P 500 Index Fund 15 year return: 4.58%
Average investor return in the same fund in the same time period: 2.67%

The difference is mainly due to poor market timing. Investors buy high and sell low! Indexers do this too.

Most Vanguard funds suffer from the same issue. See the table in this G&M article. Note the contrast between Investor series and Institutional series. Institutional investors fared much better than retail investors.

Morningstar data shows that *balanced funds are less prone* to this problem than other funds. Balanced funds have the smallest gap between fund returns and investor returns. As Morningstar explains, balanced funds shield the investors from extreme market volatility. Less volatility = less emotions = less market timing.

Note, any low cost balanced fund will do. I'm not trying to single out Mawer Balanced.


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## james4beach (Nov 15, 2012)

I'm with you there. I like balanced funds and I think they're a great overall fit for most people for the reasons you cite.

Even people who say they 'want' 100% equity exposure may find they have better total returns in balanced funds... due to the issues of psychology you described

Mawer's is a good low fee balanced fund. Putting together e-series or ETFs is another very nice balanced fund option.


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## dubmac (Jan 9, 2011)

How many people out there invest in a single balanced fund (MAW104 or other) in their RRSP? 

Given that balanced funds are already well diversified, there really isn't any need to diversify further (unless you want to skew your pf in a specific asset class beyond that of the balanced fund). The downside of course is that I feel I have too much in bond fund....and these funds have (slightly) higher MER's over MAW104.

In my wife's RRSP for example, she holds Mawer Balanced (MAW104) around 50%, MAWER Cdn EQuity (25%) and a Bond fund (25%). 

I am reflecting on a move to sell the Mawer Cdn Equity and the bond fund and collapse everything into MAW104.


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## EndersGhost (Jan 20, 2014)

Dubmac - I'm in the Mawer balanced fund right now with about 90% of my funds. I allocated another 10% to the mawer small cap (MAW150) - just because I liked it's set up, and I like small cap, so I added more exposure to it. I just started out this month though, so I can't tell you much other then that . It fits my needs at this time, and I may move to ETFs one day (for different reasons then chasing performance).


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## Belguy (May 24, 2010)

For the life of me, I can't see all of this enthusiasm for balanced funds coming from some seasoned investors.

Most balanced funds charge a 1 per cent MER or more and you are paying that fee for the bond portion of the portfolio. In the case of the Mawer Balanced Fund, for example, you are paying the fee for a third of the overall holdings that are in bonds. Are you satisfied with that because it sure as heck wouldn't make me feel too happy.

On the other hand, if you hold VSB, your management fee is a paltry .17% and that's plenty as far as I am concerned.

I have never, ever invested in a balanced fund and I never will!!! I just set up my target asset allocation between cash, bonds, and equities and pick the lowest fee products to invest in them and then rebalance usually once a year.

Works for me.

If you want to pay one full percentage point or higher in fees for your bond holdings, more power to you and have at it.


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## dubmac (Jan 9, 2011)

I like MAW104 because it's cheap, it's well diversified, it performs quite well. full stop.
Sure VSB is cheap too. but we both know that bonds got nailed pretty hard last year.
From what I can tell, you are focusing on the MER (cost) of the product - in which case you should purchase Vanguard ETF's
Not sure why you even considered Mawer's funds.

BTW: MAW104's MER is 0.78%...lower than the 1% that you quoted above.
Your 40-20-20-20 breakdown of Mawer funds has an weighted MER of 0.72% - based on my calculations


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## GoldStone (Mar 6, 2011)

Belguy said:


> Most balanced funds charge a 1 per cent MER or more and you are paying that fee for the bond portion of the portfolio. In the case of the Mawer Balanced Fund, for example, you are paying the fee for a third of the overall holdings that are in bonds.


Yes but, you get a fee break on the equity portion, compared to buying individual equity funds. You cannot ignore that. 

The balanced fund has a lower overall MER than portfolio #1 in your original post.


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## GoldStone (Mar 6, 2011)

dubmac said:


> In my wife's RRSP for example, she holds Mawer Balanced (MAW104) around 50%, MAWER Cdn EQuity (25%) and a Bond fund (25%).
> 
> I am reflecting on a move to sell the Mawer Cdn Equity and the bond fund and collapse everything into MAW104.


Sounds like a no-brainer to me.


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## EndersGhost (Jan 20, 2014)

Dubmac - I think consolidating it makes sense, personally. Less for you to handle, and have to deal with, and I'm guessing similar performance.


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## MoreMiles (Apr 20, 2011)

Belguy said:


> For the life of me, I can't see all of this enthusiasm for balanced funds coming from some seasoned investors.
> 
> Most balanced funds charge a 1 per cent MER or more and you are paying that fee for the bond portion of the portfolio. In the case of the Mawer Balanced Fund, for example, you are paying the fee for a third of the overall holdings that are in bonds. Are you satisfied with that because it sure as heck wouldn't make me feel too happy.
> 
> ...


First of all, ETF is not free either. So you are likely paying in the ball park of 0.5%. 

Second, there are people who would post "Am I getting smoked in this market?!" or "Sell, sell, sell.." as some of them would have 30% drop with individual equities. It takes strong discipline and patience not to sell losers and try to even buy more. Let's face it, when NFLX dropped more than 50% a few years ago, how many people can stomach the loss and get paid off its strong rebound later? How about GMCR or NOK, right? I know all of you will say, "I can". Yeah sure, it's always easier to make claims than to experience the real thing.

With a balanced fund, you don't see the "detailed up and down" so most investors will tend to hold longer.

Also, if you have maxed out your RRSP... then you have no choice, you need to save your net worth in taxable accounts. Mawer Tax Effective is a great choice because there will be no dozens of ACB and T-slips to keep track of. It does "capital gain / loss harvesting" for you... you will not pay any capital gain until you sell it!

One more reason, with bonds changing all the time, there IS a value with active bond management looking at yield curves and durations. Unlike equities, active bond selections do make a difference so an index fund will not offer that. http://www.marketwatch.com/story/why-active-bond-funds-beat-indexing-2013-08-01

And Belguy, that is why they are charging you a MER over the bond fund. Just Google "why active bond fund" and you will see many explanations.


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## Video_Frank (Aug 2, 2013)

Rick Ferri posted on Bogleheads about active bond funds.



> It's hard for active equity funds managers to outperform their benchmarks after adjusting for risk and fees. Only about 1 in 3 managers are able to do so over a 5 year period, and it's generally not the same managers who beat the market in the previous 5-year period. But if equity managers think they have it tough, they should try managing bond mutual funds. It's twice as hard for bond fund managers to outperform their benchmarks because the range of returns for individual bonds is much tighter than for individual stocks, combined with higher fees, create a razor thin margin for error.





> There have been several bond fund studies since 2003. All of those studies come to the same conclusions: (1) the average bond fund underperforms by an amount roughly equal their cost, (2) outperforming funds do not outperform by a meaningful amount, and (3) past outperformance typically does not persist.
> 
> Lee concluded that the average underperformance of actively managed bond funds was 0.9 percent after adjusting for risk. Government bond funds performed worse with average underperformance of 1.1 percent risk-adjusted. The average cost for the bond funds was 0.8 percent annually, which explained most of the underperformance. She concluded in her report that adjusted for risk, “overall, there is strong evidence that the bond mutual fund industry as a whole does not sufficiently enhance returns to compensate for fees and expenses.”



The future is unknowable. Fees are real and knowable. I'm happy to accept what the market gives me and I will reduce my costs to a minimum.


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## GoldStone (Mar 6, 2011)

This thread is about balanced portfolios. Not about active bond funds.

If you rank similar bond funds by performance, the difference between the best fund and the worst fund is quite small. Just a few bps. Yes, active bond funds will likely underperform.

A good balanced fund can easily overcome this small handicap.


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## Video_Frank (Aug 2, 2013)

The thread started as a choice between Mawer MFs and a couch potato portfolio. 40% of the MF portfolio is comprised of active bond funds.

The choice is a matter of personal taste. You can choose to pay a higher MER and hope for index-beating performance. You can choose to pay a lower MER and accept average returns less fees. I prefer the latter.


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## Sasquatch (Jan 28, 2012)

Belguy said:


> For the life of me, I can't see all of this enthusiasm for balanced funds coming from some seasoned investors.
> 
> Most balanced funds charge a 1 per cent MER or more and you are paying that fee for the bond portion of the portfolio. In the case of the Mawer Balanced Fund, for example, you are paying the fee for a third of the overall holdings that are in bonds. Are you satisfied with that because it sure as heck wouldn't make me feel too happy.
> 
> ...


Whatever tips your little wagon, it's all good  ....... to me the 1% MER for MAW 104 is well worth not having to worry about selling, buying and rebalancing. 
I must congratulate you though on being able to buy, sell and rebalance your holdings with no trading fees of any kind. You must have a really good broker


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## james4beach (Nov 15, 2012)

MoreMiles said:


> It takes strong discipline and patience not to sell losers and try to even buy more. Let's face it, when NFLX dropped more than 50% a few years ago, how many people can stomach the loss and get paid off its strong rebound later? How about GMCR or NOK, right


You forgot to list all the ones that didn't come back, like Citigroup, Bank of America, Nortel, RIM/Blackberry, a huge number of tech stocks and financial companies.

At the risk of getting off topic. My point: closing a position because you feel pain is not necessarily a bad idea. Holding on while a stock plummets can be very hazardous to your financial health.

Holding a crashing stock is not "bravery". It's usually just a pure gamble. And if you haven't even bothered to read and study the company's financials, it's just reckless... even if it ends up rebounding (which doesn't always happen).

Mutual fund managers do, presumably, read the companies' financials. Similarly the index makers (S&P for instance) do have criteria they monitor to see whether a company qualifies for continued inclusion in an index.

If you also have criteria similar to this, then fine. But from what I've seen, most people use very ad hoc methods to invest in stocks and I think there's definitely a place for mutual funds and certainly the index


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## Squash500 (May 16, 2009)

Sasquatch said:


> Whatever tips your little wagon, it's all good  ....... to me the 1% MER for MAW 104 is well worth not having to worry about selling, buying and rebalancing.
> I must congratulate you though on being able to buy, sell and rebalance your holdings with no trading fees of any kind. You must have a really good broker


 I prefer buying the XTR over the MAW 104. XTR much more transparent. Also don't have to worry about currency risk with the XTR.


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## GoldStone (Mar 6, 2011)

Squash500 said:


> I prefer buying the XTR over the MAW 104. XTR much more transparent. Also don't have to worry about currency risk with the XTR.


Squash, that's apples and oranges. Fund mandates and asset allocation are not the same. MAW104 seeks long term growth. XTR seeks monthly income.

But since *you* started it, let's compare apples and oranges.

3 year annualized total return:

MAW104: 11.3%
XTR: 5.5%

Can't compare more than 3 years. XTR changed its mandate on Sept 1, 2010.


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## Squash500 (May 16, 2009)

GoldStone said:


> Squash, that's apples and oranges. Fund mandates and asset allocation are not the same. MAW104 seeks long term growth. XTR seeks monthly income.
> 
> But since *you* started it, let's compare apples and oranges.
> 
> ...


Fair enough GS. I do however believe in good low fee balanced funds. I never used to. If I didn't need the monthly income so badly then I would probably invest in MAW104 or with Steadyhand etc. I personally panic too much holding individual stocks and sell at the wrong times. With XTR I was able to hang in there (when it hit a 52 week low price of 11.63 in June 2013) and I actually averaged down on the XTR in late December when the price of the XTR was much lower then it is now.

The only reason I didn't bail out of the XTR in June 2013 was because I was receiving that continuous monthly income.


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## christinad (Apr 30, 2013)

One reason i'm not keen on a balanced fund is the transition between your rrif and non-registered account. I suppose you could just transfer the balanced fund to the non-registered account but might there not be some advantages to having your gics or bond separate so you can choose to sell those off and keep the equity funds. I compared the performance between keeping a portfolio of Mawer Canadian Equity (20%), International Equity (20%), and US Equity (20%) and global small cap fund (10%) plus 30% gics with 3% interest with the Mawer balanced fund and they got identical returns. (just for last year)
I'm still on the fence. I agree you may not want to keep with the 30% bond allocation Mawer gives you - personally I will probably increase fixed income to 40% when i'm 50. While I agree Mawer in general has good returns, I don't think their Mawer bond fund is one of their strongest funds.


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## Squash500 (May 16, 2009)

christinad said:


> One reason i'm not keen on a balanced fund is the transition between your rrif and non-registered account. I suppose you could just transfer the balanced fund to the non-registered account but might there not be some advantages to having your gics or bond separate so you can choose to sell those off and keep the equity funds. I compared the performance between keeping a portfolio of Mawer Canadian Equity (20%), International Equity (20%), and US Equity (20%) and global small cap fund (10%) plus 30% gics with 3% interest with the Mawer balanced fund and they got identical returns. (just for last year)
> I'm still on the fence. I agree you may not want to keep with the 30% bond allocation Mawer gives you - personally I will probably increase fixed income to 40% when i'm 50. While I agree Mawer in general has good returns, I don't think their Mawer bond fund is one of their strongest funds.


 It kind of depends on a few factors. Most of my portfolio is in my non-registered account. I've always had a great fear of equities. IMHO funds like MAW 104 or ETF's like the XTR are kind of like "equities with training wheels." You get some equity exposure but your risk of loss isn't as great as with a pure equity fund or ETF. 

With a balanced fund or an ETF like the XTR you can also take on a big position (for example $100000-$200000) and know that you are well diversified. As opposed to just putting $200000 into a stock like BCE and taking your chances.

It's also much simpler (bookkeeping wise) to put $200000 (for example) into the XTR as opposed to putting $10000 into 20 different individual stocks or ETFS. As usual just my opinion.

I also believe in keeping all my money in Canada. I'm not a big traveller and I hate worrying about currency risk. That's another reason why the XTR suits my needs as opposed to the MAW 104.


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## james4beach (Nov 15, 2012)

lol here we go with XTR again. You're heavily invested in junk bonds, do you know that?

Transparency, please! XTR can hold any arbitrary assets it wants. Its currently a junk bond heavy fund. About 80% of the fund highly correlated with equity movements (so it's not a balanced fund) with potential for large price drops if equities weaken.

So talking about equity risk... your exposure is around 80% in XTR because _junk bonds act just like equities._

A balanced fund would only be 50% equity exposure


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## Squash500 (May 16, 2009)

james4beach said:


> lol here we go with XTR again. You're heavily invested in junk bonds, do you know that?
> 
> Transparency, please! XTR can hold any arbitrary assets it wants. Its currently a junk bond heavy fund. About 80% of the fund highly correlated with equity movements (so it's not a balanced fund) with potential for large price drops if equities weaken.
> 
> ...


 James I totally realize this about the XTR---LOL. However I just refuse to invest in a 1 year GIC paying 1.43% at TDDI. I'm willing to take my chances. I have no children, no wife and no car---LOL. I live very modestly in a small bachelor apartment in Toronto. Therefore I guess you can say that I'm semi retired at 51 years old with a modest mid six figure net worth.

I also own in my non-registered account some XDV, CPD, CBO and XRE and about $10000 in the TDB 8150 for emergencies. I totally liquidated all my GICS that I used to hold in my non-registered account. 

By investing so simply I also save a lot of money by not having to pay a financial advisor anywhere from $6000/10000 a year in advisory fees.


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