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Weekend Reading: SPIVA Edition

The SPIVA Canada Scorecard looks at the performance of actively managed Canadian mutual funds versus that of their benchmarks. The results over the long-term show that the majority of active managers underperform their benchmarks. And it’s not even close. Here are the biggest losers:

Canadian Dividend & Income Equity Funds – Only 6.67% of the active Canadian Dividend & Income Equity Funds outperformed the S&P/TSX Canadian Dividend Aristocrats over the past 12 months. None of the active funds were able to outperform the S&P/TSX Canadian Dividend Aristocrats over the five-year horizon.

U.S. Equity Funds – Just 2.9% of funds in this category outperformed the S&P 500 (CAD) over the past five years, while only 3.13% beat the index in the three-year period.

Global Equity Funds – Over one- and three-year periods, 5.95% and 4.21% of the funds outperformed the benchmark, the S&P Developed LargeMidCap, respectively. When viewed over the longer five-year period, only 2.83% of active global equity funds able to beat the benchmark.

It’s hard to argue in favour of active management when you see results like this. Only a handful of actively managed mutual funds outperform their benchmark over the long-term, and of the ones that do outperform, you need a crystal ball to identify them in advance.

So what does this mean? The next time you meet with your advisor and he or she recommends the banks’ Canadian, U.S., or Global equity mutual funds, ask about – no, insist on buying their index-fund equivalent. Rather than paying 2% MER or more for an actively managed fund that has a very small chance of outperformance, its index fund cousin will track the benchmark closely in exchange for a very small fee (around 1% or less).

You can read the full SPIVA Canada Scorecard here.

This week(s) recap:

Last Monday I answered some criticism of my two-ETF portfolio.

Last Wednesday Marie continued her financial management by the decade series with a look at the twenties.

And last Friday I looked at whether Millennials really fear the stock market or if there are other factors at play.

This Monday I explained how some mortgage brokers are committing fraud.

On Wednesday Marie asked how much choice is too much choice?

And finally on Friday’s financial makeover we looked at starting over after a divorce.

Weekend Reading:

A 1.5% trailer is the epitome of what is wrong with financial advice in Canada, says Benjamin Felix, an investment advisor with PWL Capital.

Watch out for advisors pushing segregated funds, an area that is excluded from upcoming regulatory changes to the investment industry.

Index funds; the worst investment strategy except all those other forms that have been tried.

John Bogle is the champion of index fund investing, so it’s surprising to learn that his son – who’s also named John – runs an actively managed mutual fund.

Kerry Taylor offers some sound advice on how to talk to small kids about money.

Do you really need an emergency fund? Here’s Money Time Blog’s John Ryan on why he’s never had one.

Sandi Martin reveals the budgeting resource that everyone has but nobody uses.

Preet Banerjee explains whether you’ll pay more or less tax after Trudeau’s proposed middle-class tax cut in this latest Drawing Conclusions video.

A good look at why couple’s with age gaps face an uneven financial path when it comes to retirement.

Nelson Smith gives an insider’s view of Canada’s mortgage fraud problem.

A Canadian artist confesses that he doesn’t want to be rich, he just wants a fulfilling life.

We’re paying too much for our telecom needs, argues Alan Whitton, who says that Canadians pay an average of $203 per month for phone, internet, and cable.

Finally, a look into how the economic downturn in Calgary has crippled the event planning industry. Low oil prices mean companies are pulling the plug on Christmas parties and extravagancies like having acrobats pouring champagne from the ceiling…

Have a great weekend, everyone!

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4 Comments

  1. Steve on November 8, 2015 at 9:28 am

    Thanks for the link to the SPIVA Report Robb. It is an interesting and detailed read. In the interest of fairness, however, in order to make a true apples to apples comparison if the measure is the percentage of managers (or funds) that outperform the benchmark index then it is important to note that 0% of Index Funds or ETFs will outperform the benchmark index. They will (or should) come very close but by definition will always fall short. I don’t mention this as a pro or con in the debate but simply as an observation so the debate can be full and fair.

    • Echo on November 8, 2015 at 10:30 am

      Hi Steve, that’s a good point however the objective of an index fund is to track its benchmark as closely as possible – not to try and beat it. If an actively managed fund cannot beat its benchmark after fees then there is no point in even trying – just buy the index and you’re guaranteed to achieve market returns, minus a small fee.

  2. Big Cajun Man (AW) on November 8, 2015 at 12:14 pm

    It seems astounding how lousy Canadians are treated by the big telecomm companies, but the reason they get away with it, is because they can. Until something comes along to break their stranglehold on things, we can’t do too much about it.

    Thanks for the inclusion this week, hopefully the Browns will play better (one day).

  3. John Ryan on November 8, 2015 at 6:16 pm

    Thanks so much for the mention!

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