Comments on: A Reader asks: What do I do Next?

By: Canadian Capitalist

Canadian Capitalist — Thu, 29 Mar 2007 16:18:53 +0000

Mike: I don’t follow mutual funds, so I don’t have an opinion on which funds are worth keeping. One comment though is that you seem to have some funds that invest in the same asset classes. I also think there is a bit of performance chasing (IGI342?), so you could start with putting new money in asset classes that you are currently not capturing. For example, maybe your asset allocation calls for a 25% exposure to bonds and you could make a start by investing in XBB with new money.

I’ll second Mike’s comment that you should be patient and take your time to sort out your portfolio.

By: Mike

Mike — Thu, 29 Mar 2007 11:26:19 +0000

That sounds good Mike – I really hope we aren’t the same person

Seriously – I think it’s good to take time with the transfer – some people overreact sometimes and incur lots of fees by just redeeming everything.

By: Mike

Mike — Thu, 29 Mar 2007 04:02:42 +0000

To further this project, I offer the sample data. The transfer has already been initiated (to E*Trade), but is not yet complete. The Fidelity funds are gradually switching (automatically) to their no-load equivalent, and the AIC Advtg fund is partially beyond the DSC period. (Capital Int’l is ISC)

Code Investment, Holdings
AIC116 AIC Advantage I, 9.2%
AIC118 AIC Value, 8.4%
CIF843 Capital Intl Global Equity – A, 10.0%
FID281 Fidelity CDN Asset Alloc – A, 9.8%
FID581 Fidelity CDN Asset Alloc – A, 11.0%
FID428 Fidelity Europe – A, 9.9%
FID228 Fidelity Europe – A, 7.9%
IGI260 IG Int’l Small Cap A, 7.1%
IGI070 IG Mackenzie Univ US Growth Leaders, 1.5%
IGI342 IG Mergers & Acquisitions A, 6.8%
MFC838 Mackenzie Cundill Cdn Sec C, 13.9%
MFC1637 Mackenzie Univ US Growth Leaders, 4.7%

By: Canadian Capitalist

Canadian Capitalist — Thu, 29 Mar 2007 00:36:37 +0000

Phil: Fair enough. The Canadian market is narrow, so you could probably be okay with a couple of banks, an insurance giant, a couple of utilities, a resource stock or two etc. That’s about seven stocks or so.

But what if you want exposure to US equity, EAFE and emerging markets? I would argue that indexing is better for capturing those markets. I think I’ve mentioned before that I am not planning to selling my Canadian stocks. Like I said, indexing doesn’t have to be an all or nothing proposition.

By: Phil S

Phil S — Wed, 28 Mar 2007 20:51:44 +0000

Hey CC. I don’t know what the definition of the “average investor” might be, but here is my argument. Almost all of the typical Canadian Equity funds count the Big 5 banks and large insurance companies among the top 10 holdings. Anyone can just buy those stocks for a one time transaction fee and hold onto them forever. In that way, at least the “average investor” can beat the returns on a mutual fund because what the investor would be in effect exchanging a one time commission for a yearly 2% MER or whatever. Clearly an index fund has a much lower MER, but if you have a large portfolio, then even a 0.5% MER can be more than a one-time transaction fee. Since index funds are weighted by market cap, the highly liquid banks, insurance companies, conglomerates and whatever make up the majority of the index anyways. And if you buy them yourself, you can always leave the companies you don’t like out of your portfolio. For example, tobacco companies that make great investment returns on killing their customers. If you have a problem with that, then leave it out of your own personally tailored “index” fund. And if you sign up with E-trade where your first 100 transactions are free, then you don’t even have to worry about the transaction fees! A zero percent MER. Isn’t that enticing?

By: Canadian Capitalist

Canadian Capitalist — Wed, 28 Mar 2007 17:23:04 +0000

Scott: I have my doubts if average stock investors can really beat the market. A low-cost mutual fund run by a good manager will be a great choice, if investors are willing to stick with them even when they aren’t doing so great. In fact, part of my Canadian equity exposure is through Leith Wheeler and I am comfortable with their investing style and a few bad years won’t change my opinion. I am not fanatic about indexing but about keeping costs low.

By: Scott

Scott — Wed, 28 Mar 2007 15:54:08 +0000

Sol makes a good point. Not that you shouldn’t consider ETFs for broad market exposure, but a concentrated and well-researched portfolio of stocks – think Buffett – or a low-cost concentrated mutual fund gives you a good foundation for beating the market over time.

If you go with option 3 and decide to transition your portfolio to passive products over time, don’t forget to take advantage of the “10% free DSC” each year.

By: Abe

Abe — Wed, 28 Mar 2007 13:51:12 +0000

Is there a web site that lists DSCs for all canadian Mutual Fund families. I know globe fund does not.
Abe

By: Canadian Capitalist

Canadian Capitalist — Wed, 28 Mar 2007 13:02:32 +0000

Sol: I am not doing too bad with stocks. I am moving towards index funds because I just don’t have the time to research stocks anymore. I would still capture Canadian equity exposure using stocks and everything else using index funds.

John: The mutual funds are within a RRSP, so there is no tax considerations.

By: Dan

Dan — Wed, 28 Mar 2007 13:01:06 +0000

I believe that in order to get a better picture of the situation we would need to know the complete history. By that I mean what are the actual mutual funds that Mike owns, hopefully with the correct fund code #. How much money does he have invested into each fund, what are the purchase dates? Who does he use for a broker? We would not need to know the $ amount of his investments, a % value would do the job nicely.

Over the last year I have gone through this process. The hardest part was getting a handle on the actual cost of each mutual fund that I owned. The good news is that once I had a spreadsheet setup I was able to see how much money was being taken from me every year. I also have the spreadsheet set up to show me sector by sector, country by country breakdown of my RRSP account. I update my sheets once a year. It was a lot of work the first time, but very quick now.

If Mike wanted to post the required data, I’m sure this would be a good “class project” so to speak for us.

Cheers