Trading Expense Ratio

[Antoni]

Another cost in mutual funds? Not really, just an old one (though not always very prominent). This article by Rob Carrick explains the notion clearly and shows how to interpret the figures.
Not so long ago, one looked in vain for information on this cost. Now, it is reported: one has just to look for it.

[adrian2]

Not so long ago, one looked in vain for information on this cost. Now, it is reported: one has just to look for it.

The information was there long ago, as an absolute dollars amount - it was a simple division by the average fund assets to get a percentage. I wrote about it starting from the Fund Library days, even coined TER as Total Expense Ratio (= MER + trading costs).

[Wallace]

If the TER was very low - indicating that the fund manager did not do a lot of trading - why would you need to pay the MER of an actively-trading manager in the first place?

You would be ahead by an amount equal to the MER just by buying the top ten listed companies in the fund and holding. Which is what the manager is doing anyway ... and charging you 2-3% for doing it.

[Operabob]

Actually, it's a bit confusing because a couple of years ago someone advocated listing a Total Expense Ratio orTER which is the same as MER + TER or Trading Expense Ratio in Rob Carrick's article.

OB

[arnyk]

If the TER was very low - indicating that the fund manager did not do a lot of trading - why would you need to pay the MER of an actively-trading manager in the first place?

You would be ahead by an amount equal to the MER just by buying the top ten listed companies in the fund and holding. Which is what the manager is doing anyway ... and charging you 2-3% for doing it.

Depending on how much "skill" you place on the manager, you could be paying for him finding/analyzing companies, buying them when they're undervalued, selling when they are overvalued. One thing about simply "buying the top 10" is that you don't know when they will sell. Like the talking heads on TV who toot certain stocks, for all you know they dumped immediately following the show after you had bought their "top pick".

OTOH, indexing seems like a fine idea for most people, and I figure the TER should be pretty minimal in a well established index like the TSX60 or DOW.

[sevimo]

If the TER was very low - indicating that the fund manager did not do a lot of trading - why would you need to pay the MER of an actively-trading manager in the first place?

You would be ahead by an amount equal to the MER just by buying the top ten listed companies in the fund and holding. Which is what the manager is doing anyway ... and charging you 2-3% for doing it.

Well, from your perspective, the primary goal of fund should be to make you money. How will it achieve this goal - by turbo-tradings, or by analyzing the markets and placing a single trade a year - is irrelevant. What if the fund makes a single trade a year, but each year it acquires an asset that yields 100% next year? I think even 2-3% MER would be very reasonable.

I you think that this example is imaginary, consider the world where Warren Buffett runs Berkshire Hathaway as a mutual fund, and he decides to saddle you with 2% MER (as if he'd ever do that ). Knowing his investment strategy, I expect to see very low trading costs. And yet BRKA consistently (and significantly) outperformed S&P500 for 40+ years, never (?) posting a loss. Will a decision to perform a particular single trade a year be worth 2% MER?

As for duplicating Buffett's portfolios - well, many people actually try to do it. And it's not the worst approach by far. However, you're always too late. Buffett's resources, while theoretically limited, are formidable, so he tends to buy as much of a company he likes as he possibly can. And so do all the people who watch him. So prices jump up (if you can find any shares, that is), and so it is not such a good deal anymore. The company is still outstanding, of course, but you'll need to be much closer to Buffett's investment horizon of "eternity".

[NormR]

If the TER was very low - indicating that the fund manager did not do a lot of trading - why would you need to pay the MER of an actively-trading manager in the first place?

You would be ahead by an amount equal to the MER just by buying the top ten listed companies in the fund and holding. Which is what the manager is doing anyway ... and charging you 2-3% for doing it.

Echoing other comments...

Just buying the top 10 may be dangerous. The top ten have likely grown to prominence in the portfolio from much lower levels. They are likely to be more richly valued and potential sell candidates for the manager.

Instead, look through the fund's fillings for the book value of each holding. You can then determine the price the fund paid for each stock. You can still run into troubles here but it's better than just buying the top ten blindly.

[adrian2]

Actually, it's a bit confusing because a couple of years ago someone advocated listing a Total Expense Ratio or TER which is the same as MER + TER or Trading Expense Ratio in Rob Carrick's article.

Someone who wrote a message to that effect two posts above yours

[Wallace]

Just buying the top 10 may be dangerous. The top ten have likely grown to prominence in the portfolio from much lower levels. They are likely to be more richly valued and potential sell candidates for the manager.

Hi Norm,
In the past few years I have had the subjective impression that my own investments are doing far better than my mutual funds, Your post prompted me to do some research on my main mutual fund, MD Equity.

The top ten funds in MD Equity account for 26.24% of 366 holdings. The MER is 1.43%, lower than most comparable funds. (I couldn't find the TER). I looked at the share price of the top ten funds over the last 5 years and compared the share price growth with the total fund's performance:

Code: Select all

Symbol    2002    2007        5 yr %
          price   price   Appreciation

RY        28      59         211
BNS        28      54         193
MFC        23      40         174
TD         45      69         153
NXY        20      71         350
SNC        10      32         320
SHC        18      45         250
GWO        18      35         194
TLM         5      22         440
CTC.A      30      79         263

Average appreciation          255

MD Equity  17      27         159



If I had invested $100,000 in the top ten funds five years ago I would have accumulated $254,800
The same amount invested in MD Equity would have produced $159,000.

I realise the limitations of this n=1 study. I also realise the fact that doing the same math in a different time would produce different results. But it leads me to question the validity of diversification. It seems that the other 356 holdings may be the chains dragging the newly-launched ship to a halt.

(Please be easy on me )

"I'm a doctor, Jim - not an accountant"

[sevimo]

I realise the limitations of this n=1 study. I also realise the fact that doing the same math in a different time would produce different results. But it leads me to question the validity of diversification. It seems that the other 356 holdings may be the chains dragging the newly-launched ship to a halt.

Aah, the joys of datamining You basically answered your own question: yes, this particular sample did better for a particular period in time in the past. Once. Are you trying to draw far-reaching conclusions based on this fact?

I am sure that you can select 10 stocks from the other 356 that will outperform top 10. What does it tell us? Well, it tells us that hindsight is 20/20, but no one really tries to dispute that. Maybe it's the bottom 10 that produces superior results, did you check? Or numbers 10-20? Do you realy think you can formulate an investment strategy based on this data? Also, assets that appreciate fast will increase their weight in a portfolio, floating towards the top of the value list.

I wish I could go back 5 years, and invest all my assets into my top-performing asset that I know today

[Wallace]

Are you trying to draw far-reaching conclusions based on this fact?

No. I thought I stated quite clearly "I realise the limitations of this n=1 study"

I am sure that you can select 10 stocks from the other 356 that will outperform top 10. What does it tell us? Well, it tells us that hindsight is 20/20, but no one really tries to dispute that. Maybe it's the bottom 10 that produces superior results, did you check? Or numbers 10-20? Do you realy think you can formulate an investment strategy based on this data?

Please re-read my post. That is not what I said.

Also, assets that appreciate fast will increase their weight in a portfolio, floating towards the top of the value list.

I agree with you. These top ten companies account for 26% of the portfolio for a reason.

I wish I could go back 5 years, and invest all my assets into my top-performing asset that I know today

That's not what I did. The holdings for the top ten assets in this fund have been quite stable over the last five years. They provide the core investing (and producing) assets for this equity fund, assets that on the basis of my study of one, keep the other peripheral investments afloat.

[adrian2]

The top ten funds in MD Equity account for 26.24% of 366 holdings. The MER is 1.43%, lower than most comparable funds. (I couldn't find the TER). I looked at the share price of the top ten funds over the last 5 years and compared the share price growth with the total fund's performance

You should have digged the fund report from 5 years ago and use the top 10 holdings at that time. You're saying that they have been "quite stable", then use the info available at that time.

[Wallace]

Hi Adrian.

You're right. I'm not sure where I can find the data, but I'll search for the top ten holdings for 2002.

Hope Nortel wasn't one of them!

<Edit later> Just sent off an E-Mail to MD Management. More later.

[Icarus]

(I couldn't find the TER)

I know this is not the main point of your post (hence your parentheses) but MD Equity TER for 2006 is .13% and turnover is 36.69%. (Fairly low for an actively managed fund.)

If you're interested in this info, it's all at this site under MDFM Management Report of Fund Performance.

Also, you've equally weighted the top 10 holdings, which is not the case in MD Equity (don't know whether that was intentional).

[NormR]

Just buying the top 10 may be dangerous. The top ten have likely grown to prominence in the portfolio from much lower levels. They are likely to be more richly valued and potential sell candidates for the manager.

Hi Norm,
In the past few years I have had the subjective impression that my own investments are doing far better than my mutual funds, Your post prompted me to do some research on my main mutual fund, MD Equity.

The top ten funds in MD Equity account for 26.24% of 366 holdings. The MER is 1.43%, lower than most comparable funds. (I couldn't find the TER). I looked at the share price of the top ten funds over the last 5 years and compared the share price growth with the total fund's performance:

Code: Select all

Symbol    2002    2007        5 yr %
          price   price   Appreciation

RY        28      59         211
BNS        28      54         193
MFC        23      40         174
TD         45      69         153
NXY        20      71         350
SNC        10      32         320
SHC        18      45         250
GWO        18      35         194
TLM         5      22         440
CTC.A      30      79         263

Average appreciation          255

MD Equity  17      27         159



If I had invested $100,000 in the top ten funds five years ago I would have accumulated $254,800
The same amount invested in MD Equity would have produced $159,000.

I realise the limitations of this n=1 study. I also realise the fact that doing the same math in a different time would produce different results. But it leads me to question the validity of diversification. It seems that the other 356 holdings may be the chains dragging the newly-launched ship to a halt.

A few issues have already been mentioned. But here are a few more random thoughts.

If your goal is to match a fund's returns, then it is probably best to buy the top stock holdings in similar proportions to those in the fund. Perhaps one could replicate the top 25 holdings via a very low fee discount broker.

The same thing can go for index funds. Particularly for higher-fee index funds that track small bits of the market. (See Unbundling Canadian ETFs.)

However, if you think that your fund manager has skill (something that is likely dubious in many cases) then you might want to try to buy new positions when they are buying. You can do this by checking book values vs market values and look for changes in the portfolio between reporting periods.

There have also been a few studies (sorry, I don't have a link handy) that track fund portfolios assuming no changes are made by the manager. Often the no-change portfolio does better that the actual portfolio. That is, investors would have been better off if their fund manager was fired and replaced by a 'do-nothing' bookkeeper. That same sort of thing goes for the S&P500 where the few modifications to the index have depressed returns. (See Siegal's book "The Future for Investors").

However, there is a potential downside to buying the stocks instead of the fund. With the fund, you'll track the performance of the fund which will be less volatile than the performance of the individual stocks. If you find yourself tracking the performance of your investments each month (day, hour, second, ...) then you'll be faced with more frequent instances of regret. For instance, the fund may go up 10% in a month when most of its stocks lose money (i.e. a few big gainers and many smaller losers). Losses tend to have about twice the emotional impact as gains (in opposite directions of course). So, you may find yourself earning slightly more in the stock portfolio overall (by not paying the MER) but being much less happy about it. Do not underestimate this point.

[Antoni]

An interesting news about an undisclosed part of the trading expenses in this article, which summarizes an in-depth study, linked in different ways to Canada. Keith Ambachtsheer is recognized as the instigator of the study and the Rotman International Center for Pension Management (ICPM) in Toronto, has provided a research grant.

We argue that the difference in performance between pension and mutual funds is attributable to hidden costs in the mutual fund industry. Hidden costs generated by agreements between mutual funds and broker firms typically impact net investments.

Will we learn soon[er or later] of other questionable practices in mutual fund management?

[NormR]

An interesting news about an undisclosed part of the trading expenses in this article, which summarizes an in-depth study, linked in different ways to Canada. Keith Ambachtsheer is recognized as the instigator of the study and the Rotman International Center for Pension Management (ICPM) in Toronto, has provided a research grant.

We argue that the difference in performance between pension and mutual funds is attributable to hidden costs in the mutual fund industry. Hidden costs generated by agreements between mutual funds and broker firms typically impact net investments.

Will we learn soon[er or later] of other questionable practices in mutual fund management?

At first glance, it looks like a study of U.S. pension funds. How is it relevant to Canadian mutual funds?

[parvus]

Well, you probably want to look at this:

There has been an ongoing debate in both the media and in academia about the value Canadian mutual funds produce for the people who invest their savings through these vehicles. With Canadians now entrusting $646 billion of their savings to mutual fund managers, the outcome of this debate is not inconsequential.1 Thus far, the debate stands unresolved, with Canada’s mutual fund industry successfully parrying the cuts and thrusts delivered by the industry’s critics over the years.

An important reason the debate has not been resolved is because there has not been a standard definition of the value mutual funds are supposed to deliver to their customers. If the debate is ever to be resolved, a clear value definition that all parties can agree on will first have to be established. Once established, the debate can finally be resolved through the measurement of actual outcomes against this value standard. Such measurement should ideally be done with databases that are large, and of verifiable quality.

The study described in this article meets these criteria. It starts with an operationally useful definition of value (see above), and includes a specific something else that can act as the suitable equivalent value benchmark. We propose the comparable investment results delivered by a large sample of Canadian pension funds as the equivalent value benchmark. If Canadian mutual funds provide fair value, they would deliver equal or better investment results than Canadian pension funds deliver with similar investment mandates.

The study specifically compares the net excess returns produced by a large sample of Canadian mutual funds with domestic equity mandates against the net excess returns produced by a large sample of the domestic equity components of Canadian pension funds. An important study finding is that, over the nine-year period from 1996 to 2004, the Canadian equity components of Canadian pension funds outperformed their Canadian equity market benchmark by an average +1.2% per annum, net of expenses. Over the same nine-year period, Canadian equity mutual funds with domestic mandates underperformed their Canadian equity market benchmark by an average -2.6% per annum, net of management fees, but before any applicable sales charges. Any such sales charges would reduce mutual fund net returns even further.

The measured Canadian mutual fund average return shortfall (before sales charges) of 3.8% per annum relative to similar mandates executed by Canadian pension funds suggests the average Canadian mutual fund has not been producing fair value for its customers.

<snip>

A key metric in the study was Net Value Added (NVA), which is calculated in two steps. A fund’s gross return minus the return on the relevant market benchmark over the same period is defined as a fund’s Gross Value Added (GVA) over that period. GVA minus the fund’s management expense ratio (MER) over the same period is defined as a fund’s NVA over that period.

<snip>

We summarize the key study findings summarized in Table 1 as follows:

• The average Canadian pension fund participant received positive value from domestic equity investments, both over the 1992-2004 (DB92 NVA=+0.76%) and 1996-2004 (DB96 NVA=+1.23%) periods. This included the deduction of an average 0.25% per annum for incurred investment expenses. In contrast, the average participant in Canadian domestic equity mutual funds over the 1996-2004 period gave up considerable value (MF96 NVA=-2.60%). This loss was entirely due to the average 2.75% per annum in incurred investment expenses. Any incurred sales charges would make the value-loss even more severe.5

• The average U.S. pension fund participant received marginally below market-equivalent performance from domestic equity investments, both over the 1992-2004 (DB92 NVA=-0.12%) and the 1997-2004 (DC97 NVA=-0.44%) periods. This included the deduction of an average 0.32% for incurred investment expenses in the DB funds. The average 0.62% deduction for the DC funds includes administrative expenses as well. In contrast, as in Canada, the average participants in U.S. domestic equity mutual funds over the 1992-2004 and 1997- 2004 periods gave up considerable value (MF92 NVA=-2.78%, MF97 NVA=-2.53%). Part of this loss was due to higher investment expenses. An even greater part was due to the average U.S. domestic equity mutual fund underperforming its benchmark even before expenses. Any incurred sales charges would make the value-loss even more severe. Are there explanations for these findings?

Possible explanations for the findings

Why would Canadian mutual fund investors subject themselves to an average wealth-loss of 3.8% per annum relative to implementing the same basic investment policy through Canadian pension funds? Or equivalently, why would Canadian mutual fund investors pay an average 2.75% (or more including sales charges) for an investment service that is available to Canadian pension fund participants for an average 0.25%, and which produced inferior investment results even before the far greater expenses? A number of possible answers come to mind:

• DB pension fund expenses are understated: this is in fact the case. However, even if additional costs related to such functions as oversight, custody fees, and other administrative costs were added to the pension fund domestic equity investment expenses of 0.25%, the total expense ratio might rise to 0.40%.6 A 0.15% reduction in the calculated average pension fund NVAs in no way affects the study’s basic findings.

• The pension fund results suffer from a positive selection bias and/or risk/style biases: the researchers tested for these possibilities and found (a) the CEM database covers 70% of all Canadian DB plan pension assets, and (b) no overall risk/style biases in either the equity components of the pension funds, or in the equity mutual funds. Another possible bias might be that the cited study only compared Canadian equity mandates and not, for example, broader balanced fund mandates. The problem there is comparability. For example, pension funds invest in such asset classes as private equity, real estate, and hedge funds, while mutual funds with balanced mandates do not.

• Only 40% of Canadian workers have access to pension fund management: this is in fact the case. With only 40% of the Canadian workforce covered by an occupational pension plan, the other 60% has to fend for itself. However, this fact by itself cannot explain why Canadian investors in domestic equity mutual funds pay an average annual fee of 2.75% (plus sales charges in many cases). For example, exposure to domestic equities could be acquired by buying and holding exchange-traded funds (ETFs) for a small fraction of the fees Canadian investors pay to mutual funds.7

• Mutual funds are sold, not bought: the market for investment management services is highly asymmetric, with the buyers of these services knowing far less about what they are buying than the sellers know about what they are selling. Information economics predicts that in such a market buyers will pay too much for too little. Research results from the field of behavioural finance support this conclusion. This research shows people to be generally unsophisticated, inconsistent, hesitant, and even irrational regarding financial matters, which creates the opportunity for the for-profit financial services industry to proactively step in and sell their products and services at too-high prices.8 The veracity of his third explanation is supported by the findings of a recent survey of 1865 Canadian mutual fund investors. When asked why they had bought mutual funds, 85% said they were persuaded by “someone who provided me with advice and guidance.”9 In our view, it is the combined effects of informational asymmetry and behavioural dysfunction on the part of the customers, and opportunistic acuity on the part of the suppliers, that best explains the findings summarized in Table 1. Mahoney (2004) reaches similar conclusions in a paper titled “Manager-Investor Conflicts in Mutual Funds.”

Indeed the consequences of this toxic combination of naïve mutual fund buyers and clever mutual fund sellers are materially worse than the numbers in Table 1 suggest. A U.S. mutual fund study based on 1985- 2004 data published in Jack Bogle’s book “The Battle for the Soul of Capitalism” found that the average U.S. equity mutual fund under performed the market by the same 2.8% that we reported in Table 1. However, individual investors under performed the average experience of the mutual funds they invested in by a further average 3.3% per annum. Why? Because many mutual fund investors switch from fund to fund in search of better performance, thus falling into the typical naïve investor “buy high, sell low” trap, and in the process generating further unrewarded sales and transaction expenses.10

We conclude with some thoughts about the implications of our findings.

Financial implications
To fully appreciate the impact and consequences of these findings, consider a Canadian worker earning a constant $50,000 per annum over a 40-year working life. A sum of $10,000 per annum is saved for retirement. The retirement fund earns a pre-expense 3% real rate of return over the 40-year period. At the end of the 40-year period, a 20-year annuity is bought with an embedded interest rate of 1.5%. Table 2 sets out the annual pension this worker will receive with investment expense ratios of (a) 0%, (b) 0.4%, (c) 1.5%, (d) 3%, and (e) 5%. Table 1 suggests that a 0%-0.4% ratio range is realistic for Canadian pension fund experience, depending on whether the average Canadian pension fund continues to offset its investment expenses with excess returns over market benchmarks.11 The 1.5%- 5% ratio range covers the wide range of possible expense ratio experiences for Canadian mutual fund investors. The 1.5% ratio is at the low end of the range, and assumes the investor does not engage in the kind of “buy high, sell low” activity that Bogle describes in his book. The 5% case assumes expense ratios at the high end of the range, as well as active engagement by mutual fund investors in the further wealth-reducing behaviours described by Bogle. Table 2 indicates that under realistic assumptions, the typical mutual fund investor faces a minimum pension reduction of 22% (i.e., from $41,000 per year to $32,000 per year) relative to the typical pension fund participant (i.e., with a mutual fund expense ratio of 1.5%, and a pension fund ratio of 0.4%). That pension reduction grows to 64% if we push the mutual fund expense ratio up to 5%, and offset the pension fund expense ratio of 0.4% with an equivalent amount of pre-expense excess return (i.e., the pension reduction now is from $45,000 to $16,000 per year). From a different perspective, if we apply the calculated annual net return shortfalls directly to the $646 billion Canadians have invested in mutual funds, their collective value loss is somewhere between $7 billion and $32 billion every year.

Public policy implications
The preceding financial analyses suggest that the vast majority of the 60% of the Canadian workforce who are not members of occupational pension plans will have a very difficult time generating adequate pensions by investing their retirement savings through the mutual fund sector. This is so despite the very high 20%-of-pay savings rate assumed in the example. The sales/investment expenses wedge being imposed by Canada’s for-profit financial services industry is simply too large. What, if anything, should Canada’s federal and provincial governments do about this reality? At one extreme, a caveat emptor approach leaves millions of Canadian workers caught in this financial trap the impossible task of discovering their own way out. At the other extreme, a benevolent dictator approach would ban mutual fund investing altogether and force all workers to save for retirement through a central low-cost government agency.

We favour a middle way: the “paternalistic libertarian” approach currently in the process of being adopted in the UK. The basic idea is to create a number of arm’s-length, expert, pension delivery organizations, and then to automatically enroll the entire non-covered part of the workforce into one of them. People can elect to opt out if they do not wish to participate. A minimum 7% of pay contribution rate is projected to increase the median income replacement rate for UK workers from 30% of working earnings (from Pillar 1 social security payments) to 50% of earnings. A key assumption in these calculations is that the pension delivery organizations operate in the sole best interests of plan participants, with expense ratios of 0.3%.12 Canada’s governments successfully reformed an important part of the universal Pillar #1 component of our pension arrangements in the 1990s (i.e., CPP/QPP). Our study indicates that they must now urgently turn their attention to reforming the occupational part of our retirement income system. Creating pension delivery organizations that are able and willing to produce fair value for all Canadian workers will be a critical element of this reform.

[Antoni]

The above post of Parvus is an adequate reply on the question of the relevance of the study for Canadian mutual funds.

Apart from that, the defense "U.S. is not us" is lame. Failing foresight, maybe we could use hindsight? At first, when the issues about late trading and market timing were raised in the U.S., many were thinking such things could not happen here. But it seems that eyes have been opened, and finally the very same was happening here.

[Wallace]

If your goal is to match a fund's returns ...

Hi Norm.

The point of the exercise was to try to decide whether the mutual fund has been a good investment compared to other options.

I haven't been able, so far, to find the top ten holdings of the fund for 2002, so I compared the performance of the fund instead to XIU, the S&P TSX index fund, present value 78 and extrapolating back to a value of 43 in 2002. This would still make an investment of $100,000 in 2002 worth $189,000 today compared to $159,000 invested in the fund.

Still a significant difference, and probably what the ETF enthusiasts have been telling us all along.

Nevertheless, I can't shake the definite impression that investing in top-quality blue chip stocks that are going to be around 10-20 years from now is the way to go. With the exception of CTC.A, the other 9 out of the top ten would have been high on the list for anyone five years ago, so making $250,000 instead of 159,000 would have been feasible if I had been bright enough to see the light in 2002.

No?

PS: I've had enough experience with individual stocks now that short-term fluctuations don't bother me

[NormR]

If your goal is to match a fund's returns ...

The point of the exercise was to try to decide whether the mutual fund has been a good investment compared to other options.

Ah, that's something of a different question/motive.

The simple answer is yes and no.

That is, you should be able to find some funds/etfs/etc that did better in the period and others that did worse. Yes, that's a bit of a flippant response. But the more you compare the fund to other investments (etfs, other funds, top ten stocks, etc), the more likely it is that you'll find something that has outperformed it.

I haven't been able, so far, to find the top ten holdings of the fund for 2002,

www.sedar.com should have a listing.

so I compared the performance of the fund instead to XIU, the S&P TSX index fund, present value 78 and extrapolating back to a value of 43 in 2002. This would still make an investment of $100,000 in 2002 worth $189,000 today compared to $159,000 invested in the fund.

Still a significant difference, and probably what the ETF enthusiasts have been telling us all along.

Nevertheless, I can't shake the definite impression that investing in top-quality blue chip stocks that are going to be around 10-20 years from now is the way to go. With the exception of CTC.A, the other 9 out of the top ten would have been high on the list for anyone five years ago, so making $250,000 instead of 159,000 would have been feasible if I had been bright enough to see the light in 2002.

No?

I'm not sure that XIU is the best benchmark for MD Equity. Globefund indicates that MD Equity has significant foreign holdings.

PS: I've had enough experience with individual stocks now that short-term fluctuations don't bother me

Okie, I just hope that you haven't been caught up by another behavioural pitfall - overconfidence.

[NormR]

The above post of Parvus is an adequate reply on the question of the relevance of the study for Canadian mutual funds.

Apart from that, the defense "U.S. is not us" is lame. Failing foresight, maybe we could use hindsight? At first, when the issues about late trading and market timing were raised in the U.S., many were thinking such things could not happen here. But it seems that eyes have been opened, and finally the very same was happening here.

Sorry, the study you linked didn't seem to mention Canada. Thus my confusion.

You seem to imply that problems with the non-disclosure of trading expenses in the U.S. may also impact or also be a problem for Canadians. At the moment, I'm too lazy to read through the academic study. Perhaps you can connect the dots more explicitly? After all, we are in the 'finance for beginners' section.

But perhaps you just have a problem with high fees that are disclosed in Canada?