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Dale Jackson

Your Personal Investor

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A split-second decision to invest in a mutual fund could alter the course of your life.

That’s what it comes down to for average Canadians who put their retirement savings in mutual funds. While most underperform their benchmark indices, many others leave them in the dust. Then there are those that perform so poorly that investors would have been better off saving the fees and stuffing their money in a mattress.  

The gap between the two is wide. During the first half of 2017, the TSX Total Return Index squeaked out a 0.7 per cent return and the average Canadian equity fund barely broke even. The best performing fund over that same time, Aventine Canadian Equity A, posted a 6.2 per cent return. The worst, Trimark Canadian Opportunity A, lost 4.5 per cent.

Six months isn’t a big time span for the long-term investor but the gap remains wide over longer periods. Over the past ten years the TSX Total Return Index has advanced 3.9 per cent each year and the average Canadian equity fund has returned an average 2.7 per cent. The best performer over the same time period, Mawer Canadian Equity Series A, posted a 7.4 per cent return. The worst ten year performer, MD Select Series A, return 0.5 per cent.

For the long-term investor the difference could be hundreds of thousands – or even millions – of dollars in retirement.

Fund managers cannot control the markets. Some years even the best lose money. Good managers, however, will beat the markets when they are up and limit the loses when they are down.

Mutual fund companies will often advertise impressive past returns. The key to finding the best funds is comparing past returns with their benchmarks over long periods of time. If a fund manager brags about past returns it’s likely he or she rode the wave of a bull market. It’s even possible the fund failed to ride the full wave and underperformed the benchmark.

All mutual funds are required to post a disclaimer saying: “past performance does not reflect future returns.”

True, but past performance is a good start.