Jan 18, 2017
Personal Investor: Canadian equity funds fall short in 2016
By Dale Jackson
Most Canadians save for retirement through mutual funds, and no mutual fund portfolio is complete without a Canadian equity fund.
Judging by Canadian equity fund returns, that means a whole lot of Canadians were shortchanged in 2016.
The resource recovery propelled the benchmark S&P/TSX total return index to a 21 per cent advance last year.
Most of the 300 or so Canadian equity funds that track the index missed the ride, advancing only 16 per cent on average.
That five per cent gap between the index and the average mutual fund is typically narrower. Curiously, it’s usually more in line with the average annual fee (management expense ratio), which is normally in the two per cent to 2.5 per cent range. In those cases the fund manager theoretically matches the index before fees. But a five per cent gap?
Anyone with a Canadian equity fund should check its 2016 return. If it was higher than 16 per cent, your manager has outplayed its peers. If it was higher than 21 per cent, your manager outplayed the entire market.
If it falls below the average 16 per cent return, or even the 21 per cent benchmark return, investors should talk to the advisor who sold them the fund and find out why. One year does not make or break a mutual fund, especially if it has a value focus that requires patience. Look at returns over longer periods of time.
In many cases investors are just happy to get a double-digit return, but your annual return will also say a lot about how well the portfolio manager is prepared to hold those gains when the benchmark is down.
