Managed Money Reporter Newsletter — Issue 186, August 2002


Editors: Carl Spiess & Allan McGlade


Featured Articles



Business Week's "The Death of Equities" Revisited

To paraphrase Mark Twain, as regards the stock market "the rumours of my death are greatly exaggerated".

It was August 13th, 1979 and  Business Week Magazine's  cover story featured "The Death of Equities".  What followed was one of the best 20 year bull markets in history.

Today, we see similar sentiments being reflected in headlines.  And unfortunately, as one can tell by looking at recent investment statements or fund performance figures, the last 3 years have offered dismal performance.  But it is worth noting, that the 10 year returns on virtually all the funds available in Canada have been positive, with only a handful of exceptions.  The majority of the under-performing funds are T-bill and money market funds (not equities funds) over 10 year periods.

To support that, we looked at how many funds have had negative returns over the last 10 years, ending July 31, 2002.  Of the 600 funds in Canada with 10 year performance records, only 21 have under-performed inflation (1.7% average annual growth) and only 12 have actually had a negative total return over 10 years.  Curiously, half of that latter 12 are all from the tiny and under-performing Cambridge group of funds.[1]

So while 5 year returns may be disappointing, 10 year returns inevitably are not.  Unless you plan on spending all your capital in the next 5 years, (unlikely even for retirees) we would recommend staying with your equities (eg. stock funds).  Of course a good balance of stocks and bonds will provide more stability, and still have upside potential.  That being said, if all you require is 4-6% growth, we can easily convert to GICs and bonds, but remember in a taxable account, much of that growth will go to taxes.

World famous investor Warren Buffet writes:

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Author Jeremy Siegel, who wrote Stocks for the Long Run, also offered up some cause for hope in a recent Wall St. Journal opinion piece.  He points out that:

It is "patently wrong" to turn negative on stocks when they've already fallen by 40% or more.  Historically, there have been six stock market peaks in the last 100 years. After the market has dropped by 40% or more from these peaks, the return in the subsequent five-year period has averaged 8.6% BEFORE inflation and has NEVER been negative. Investors are flocking to bond funds with yields on 10-year Treasuries at a lowly 4.4%. Over the next five years, do you really think the return on bonds will exceed that of a portfolio of common stocks? This is not to say that stocks can't fall further in the interim – it is just to point out the low probability of bonds beating stocks over the next five years.

It is most likely that you already have a good balance between long term growth potential and guaranteed investments in your portfolio.  Please contact us at any time if you wish to have a personal review of your investments and goals.

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[1] This kind of historical perspective is really the best use of our Top Ten and Bottom Ten lists.  The lists are not intended as specific buy/sell recommendations.  The very low number of poor performing 10 year funds is partially explained by a term we described in a previous issue about survivor bias.  The lists only show funds with over $25 million in assets, so the Cambridge funds do not appear.   Also, Working Ventures, would have a significantly positive return if the 40% tax credits from 10 years ago (now 30%) were factored in.  On top of that, you would only ever want to hold a Labour fund for 8 years before rolling over to get the tax credits again, thus improving your returns further. 

Fund Profile - Royal Dividend Fund

You may be surprised to note that funds like the excellent performing Royal Dividend fund, and other members of no-load fund families such as Royal, TD and Altamira can be held in your ScotiaMcLeod account.

If you would like to invest in any of the funds from these fund families, please contact us.

View the complete Fundmonitor report on Royal Dividend Fund

The Benefits of Consolidation

If you currently hold funds from Royal, TD and Altamira outside of your ScotiaMcLeod accounts, you should transfer them "in-kind" to your account, and simplify your record keeping.  You will get one statement with all your investments listed together, and yet still have a well diversified account because you have not changed your investments.  Benefits include:

  • Easier To Maximize & Monitor Foreign Content
  • Simplified Reporting
  • Ability To Spot Redundant Funds Using Our Fund Correlation Software
  • Performance Reporting Using Similar Benchmarks
  • Increased Switching Options
  • Our Performance Monitoring Service Can Flag Under-Performing Funds
  • A Higher Level Of Service From Your Dedicated Investment Team

Consolidate now with our handy RSP transfer form or contact us for non-RSP account transfers or more information.

Scotia Online - A Terrific Free Service

We were very excited by the number of people who signed up to view their accounts online last month using Scotia Online.  The feedback on the new fund research and information has been tremendous.

What we forgot to mention is that this terrific service is available free to all ScotiaMcLeod clients.  If you haven't done so already, click here for more information about Scotia Online.  

Mutual Fund Reporter Recommended Website of the Month 

A terrific Mutual Fund information source is the Canadian Online Explorer (Canoe) Webfin site.  It features performance, stock quotes, but most importantly, good articles by the financial writers at the Toronto Sun and other Quebcor companies.

 



Contact Us

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E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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