Anyone Do Analysis Mutual Funds Ala March 2005 Consumer Rep?

[Bylo Selhi]

it seems that no fund manager exhibits skill in Canada

That's not what we're saying. Norbert addressed it upthread when he responded to Andrew:

"Skill" is better measured as the ability to outperform a benchmark, because anyone can get that benchmark at very minor expense. If a mutual fund manager can't do that, then s/he doesn't have skill that's worth paying for.

Note the implication. Consider that the typical Canadian mutual fund charges an MER of 2.5% and incurs other frictional costs like brokerage fees, spreads and market impact costs that raise the total drag of active management to, say 3% or 4%. An index fund that invests in the same asset class incurs costs of, say 0.5%. So the fund manager's skill could add as much as 3.5% a year yet still not provide an investor with as good a return as a dumb, boring index fund. In other words, the fund manager has to have enough skill to add that much value, each and every year, just to break even. That's a tough bar to jump over, especially over a long time period like 10 or 20 years. Again, no one disputes that some (many?) fund managers have "skill." The issue is do they have enough of it to provide value net of their costs.

Hard to believe that "we" invest in companies like those two listed above - either directly in stocks (or bonds?) or indirectly in mutual or index funds.

What's your alternative? Were you present at the meetings inside Ford and GM where these issues were discussed, when you could have detected reckless behaviour on the part of management, and made the decision to bail out? Were there any mutual fund managers present at those meetings who could have made similar decisions?

[yielder]

That produces 12 funds

Relaxing the MER to 2% which is reasonable give the higher MERs in Canada:



It's not surprising to see the list dominated by dividend funds.

You can also go to GlobeAdvisor and log in in Test Drive mode. Click on Click here to continue with login. Then click on the Launch ProStation tab.

You can get this kind of output:

[DanH]

Mawer Canadian Equity (mid-large cap) remains open.

Mawer New Canada (small cap) closed a year ago.

[waldo]

Blyo said: That's not what we're saying.

The bottom line for me is (for me): that no fund in Canada meets the CR criteria (even when the expense ratio exceeds 1.6% used in the CR report). So I either move to the USA (which I can now in retirement...hmmm Santa Monica CA ceratinly is of the most livable cities in North America) or put my money in alternative investments.

Personally I believe/trust CR's viewpoints more than any other person/group's viewpoints when it comes to or involves money. Obviously that doesn't mean anyone here has to trust CR more than any other source they deem valid.

For the last 24 yrs. I have focused on investments that outwardly don't produce "death,dirt and destruction". So I have only been in money market and government bonds. Yes I know those funds could be inadvertently (or secretly) used for all kinds of nasty things. Now I have 2 choices in my retirement: to tighten my belt or go beyond money market and government bonds.

Can one invest ethically - if one wishes to (I do)? Invest in an "ethical" fund? Then find out that "ethical" fund manager is investing in company that makes the guidance systems for plutonium tipped missiles (bombs) I can't imagine making money over the dead bodies of 30,000 to 100,000 women, children, grandfathers, and grandmothers killed by bombs far in Bush's war Iraq!

In one of my careers - a sculptor - I was moaning and groaning about the nasty unethical multi-millionaire clients (e.g. fur coat maker) I had to deal with. My artistic guardian angel (another multi -millionaire) listening to my complaints and replied: "there is no such thing as clean money .. if you follow it back far enough". Is that true (see below)?

Bylo said: Were there any mutual fund managers present at those meetings who could have made similar decisions?

That's the rub! Lynch (a highly skilled fund manager yes/no?) according to his books was on the phone daily with CEOs of various corporations - questioning their management decisions and directions. Did Lynch influence CEOs? Maybe! In the same fashion, did Buffett influence CEOs? Wonder if he talked to Enron's Boys and decided not to put his money there? Are there skilled fund managers on the phone daily to CEOs in Canada?

In my twisted logic - now - I am looking to invest in potentially nasty companies via an Index; and, then do penance by volunteering to assist Aboiginal Groups in Canada fight for the 7 trillion dollars in resources and land - that have been stolen from them over the last 200 years. How many blue chip "old wealth" companies in Canada - exist because of the theft of resources from Aboriginal Nations?

[waldo]

DanH said: Mawer Canadian Equity (mid-large cap) remains open.
Mawer New Canada (small cap) closed a year ago.

Yes that's the case. It's Mawer's small cap that's closed. Just shows that I am starting to go punchy after having done over 200 scenarios with different variables - trying to find the most skilled (which is different from highly skilled).

[andrew]

I... do penance by volunteering to assist Aboiginal Groups in Canada fight for the 7 trillion dollars in resources and land - that have been stolen from them over the last 200 years. How many blue chip "old wealth" companies in Canada - exist because of the theft of resources from Aboriginal Nations?

GREAT intentions. But since there are hundreds (actually, thousands by many recognized counts even before counting tribes that no longer exist) which ones should we give to? Many of the tribes pursuing the claims are not the original inhabitants of the land. Are they agreeing to give it back to the ones they 'stole' it from, or at least their decendants since none of the original inhabitants are still alive? Should they be taken seriously without this assurance? And what happened to the common aboriginal belief that no one can own the land? I guess that they changed their minds?

[waldo]

I have been a paid "consultant" off and on for 30 years, to both the Indian Affairs Branch of the Canadian Federal Government and to various Aboriginal Nations. So I have a good background on the issues.

What I am referring to is: when the British and French Nations came to Kanada (Canada) - contracts were made between the British Nation and the Aborginal Nations, between the French Nation and the Aborginal Nations and later between the Canadian Nation/Government with the Aborginal Nations.

It is clearly documented that the Canadian Government has not met the terms of the above contracts. It is a simple as that. One of the outcomes of the Canadian Government not fulfilling it's legal obligations - is that it has allowed trillions of dollars of resources to be removed legally and illegally from Aborginal lands - without charging the corporations that removed the resources - the required percentage to be paid to the land owners (the Aboriginal Nation). Then there were the illegal tranfers of Aboriginal lands - which includes those illegal land deals made by my uncle - no less! So there is no question - who is owed big bucks, and how much (interest included). As I said before, I imagine a lot of old wealth blue chip companies in Canada - are wealthy - solely because of the lumber, coal, gold, and other resources removed from Aboriginal Nations land. Either those campanies and/or the Feds need to now pay up.

When I now talk about volunteering - I do what I can. In the current case at Caledon, I have written extensively to Premier McGuinty and PM Harper as well as the opposition parties - outlining the contract issues. And reminding all - that "gentlemen" honour their contracts - and that it is time to fulfill their obligations. If enough Canadians do the same - maybe.... maybe a wrong will be made right.

[waldo]

Is there an Index Mutual Fund or Canadian ETF that mirrors the 60% S&P/TSX, 40% Scotia Universe?

[andrew]

It is a simple as that.

I think that your efforts and intentions are great, but I have to disagree with this comment and then leave it at that.

[NormR]

Consumer Reports showed 70 winners based on 10 criteria - beating the market was(is) only one of the criteria. You can read the entire Consumers Report article online for a couple of dollars (or in the library).

Here briefly is my summary of the ten (if I understood the article correctly ):

1] 10 year old mutual funds.

Consistency Score

2] Standard Deviation (40% of Consistency Score)
Standard Deviation

double standard deviation and adding or substracting from fund's average total return.

a] low 10 yr. standard deviation
+ b] 5 yr. monthly standard deviations
+ c] 10 yr. monthly standard deviations

3] Worst One & Two Year Results (15% of Consistency Score)

4] Number of Quarters Over Last Ten Years Bested Either Vanguard Index Fund (mirrors S&P 500) OR Russell 2000 Index (for small companies) which produces median quarterlies compared to indexes. A Positive Mean Difference means beating index more than half the time. Funds with greater positive score are more consistent. (40% of Consistency Score).

5] Management Tenure (5% of Consistency Score)

6] Positive Alpha

7] MER 1.6% OR UNDER

8] Feduciary Grade (Stars??)

9] Tax-Cost Ratio

10] No Load

Since I had to hunt for it, here's the list from another thread.

[NormR]

It really boils down to whether an investor does or doesn't believe that a handful of mutual fund managers do have skill. That is they can produce consistent results that beats the Indexes.

By demanding consistent results you are likely to ignore some skilled managers and may buy others who are not skilled.

First, if you want to outperform an index then your manager has to own different stocks (or the same stocks in different amounts). That is, you have to be different from the index. As a result, consistently outperforming the index shouldn't be expected.

Second, you are confusing/equating the probability of success with the magnitude of success (or failure). A consistency criteria could lead you to a manager who has a 95% probability of marginally beating the index in any year but a 5% chance of going bust and losing all of your money. Similarly you would tend to ignore a skilled manager who has a 60% chance of marginally underpeforming the index but a 40% chance of beating the index by 10 percentage points in any year.

Consistently beating an index does not necessarily equal skill. Many skilled managers do not consistently outperform the index.

[Edited for typos ]

[optionable68]

DanH said: Mawer Canadian Equity (mid-large cap) remains open.
Mawer New Canada (small cap) closed a year ago.

Yes that's the case. It's Mawer's small cap that's closed. Just shows that I am starting to go punchy after having done over 200 scenarios with different variables - trying to find the most skilled (which is different from highly skilled).

You can pick up Mawer's Small cap fund via GGOF, albeit at a higher MER

[Bylo Selhi]

Finding mutual funds with the best records

Sometimes it's good to prowl around the data and see what turns up.

While there is no guarantee that past performance in a mutual fund will be repeated in the future, a long and positive history of superior performance is a pretty good indication that someone knows what he or she is doing. It's also comforting during periods of market misery.

So here's what I did in a recent exploration of the Morningstar Principia mutual fund database. First, I limited the search to funds with at least 20 years of history – only 1,145 funds. Limiting the search to domestic equity funds cut the number to 562.

Requiring that the funds did better than the Vanguard 500 Index fund – my usual benchmark – over the last five, 10 and 15 years reduced the number to only 173. In other words, only 30 percent of the funds consistently did better than my Couch Potato approach.

Then I made sure it was still possible to invest in the fund, that the minimum investment was $10,000 or less, and that it was a true no-load fund.

That eliminated some interesting load funds (more about them later), but it still left a field of 94 funds that anyone could buy. At that point my search became more idiosyncratic as I examined the funds themselves...

Asking for all the funds that produced superior returns with less risk reduced the list to only 37 funds, including all the balanced funds mentioned above. Weitz Value and Weitz Partners Value, both large-cap value funds, made the cut. So did T. Rowe Price Equity Income, Fidelity Equity Income, Vanguard Windsor II, and Selected American Shares.

Conclusion: 3.2% of US domestic equity funds that survived for 20 years outperformed Vanguard's S&P 500 index fund and did it with lower risk.

[yielder]

Finding mutual funds with the best records

Not surprising to see John Neff and George Mairs make the cut.

[Bylo Selhi]

John Neff retired from Wellington Management in 1995, so presumably he's now well into his 70s. George Mairs is now aged 78.

I freely admit that these guys were great money managers in their time and they deserve our admiration. I'll even acknowledge that they have skill.

But what good is that knowledge to someone who wants to invest today? Assuming that Neff and/or Mairs still have some involvement in the fund management business, how many more years of doing that do they have left ahead of them?

More importantly: Who are the John Neff and George Mairs of today, i.e. who will make Burns' cut in 20 year's time?

[yielder]

But what good is that knowledge to someone who wants to invest today?

If the funds they managed have similar characteristics today, then you might expect similar results. Also, if today's manager worked closely with them, there's a reasonable expectation of similar results.

More importantly: Who are the John Neff and George Mairs of today, i.e. who will make Burns' cut in 20 year's time?

Maybe William B. Frels or Edmund M. Notzon III

[waldo]

Bylo said:

Conclusion: 3.2% of US domestic equity funds that survived for 20 years outperformed Vanguard's S&P 500 index fund and did it with lower risk.

So there are skilled mutual fund managers after all (in the USA)

So where are, which are the 3.2%ers in Canada? If we continue to "make" skilled comedians - "we" must be able to make skilled stock pickers in Canada.

[Jo Anne]

So where are, which are the 3.2%ers in Canada?

Why don't you do the research on that, waldo? I'm sure there are a lot of people here who would be interested in the results.

[waldo]

Anyone know where online - a web site where I can see the annual return, year by year, for the last 10 yrs. or more - for all of the 100 plus indexes? The GlobeFund site just goes back 7 yrs.

Anywhere online to see standard deviation - on a month by month basis - for the last 10 yrs. - for all Canadian mutual funds?

Is there a web site where all untruthfulness/crookness of mutual fund managers in Canada is exposed? Morningstar in the USA does it (fiduciary responsibility) - but not in Canada

[waldo]

Why don't you do the research on that, waldo? I'm sure there are a lot of people here who would be interested in the results.

Well ...... that's what I have been trying to do here and other places. I have done a lot of screening scenarios of Canadian mutual funds - and have been trying to find someone (smarter than me ) to do it - to verify my findings. Several brokerages have done it - and only found a couple of funds (because they only sell a couple of the 3 1/2%ers?).

Yes I am sure that several hundred thousand Canadians would love to know the answer. As I mentioned before I hope Consumer Reports (waiting to hear back) will start to publish Canadian mutual fund "winners" as well as the USA "winners".

[waldo]

Interesting powerpoint presentation by Milevsky on variable annuities at Morningstar Investment Conference ... hmmm I wonder how to get the audio?

http://www.ifid.ca/pdf_lectures/2003JUN27.pdf