Managed Money Reporter Newsletter — Issue 195, May 2003


Editors: Carl Spiess & Allan McGlade


Featured Articles



Market Commentary

After a very difficult beginning in 2003, April was a rewarding month for investors.  As reported by Morningstar, nine out of every ten funds and 26 of 32 Morningstar Canada Fund Indices increased in value. This is a big change from the first quarter when 91% of funds and 26 of the indices were negative.

For April, 93% of the more than 4,600 Canadian funds surveyed by Morningstar earned money for investors. This is the best showing since November of 2002 when 95% of funds were in positive territory.

Earnings tend to drive the markets and as of May 5th, 316 out of 500 S&P500 companies had reported earnings.  199 beat expectations, 69 met expectations while only 48 had disappointed investors with their quarterly results.

While not every fund is invested in the markets, in general, Canadians have used funds to invest in diversified portfolios of company shares or bonds or a blend of investments.  When we hear people saying "I'm really pleased with my funds this month, or I'm really frustrated by mutual funds over the last several years" what they are really saying is "I'm pleased" or "I'm disappointed" by company earnings and the markets over those same time frames.

Mutual funds are just one of the many ways that people can invest, and blaming funds for recent poor investment performance is like blaming your car for getting stuck in a traffic jam.  Funds, like your car, are just a convenient way (a vehicle) to get somewhere.  When external events conspire against you like the markets have in the past 3 years, there is no way to get off the freeway.  We just have to wait until the market lane in front of us clears up and starts moving forward again.  And funds are like cars in another way, there are some good performers and some poor performers, and despite their ubiquity, popularity, and occasional demonization in the media, they remain immensely useful.  There are however also alternatives to both cars and funds that are worth considering.

Alternatives to equity mutual funds include managed wrap account programs, index funds, investing directly into stocks, or choosing to get out of the markets entirely.  Each of these options has pros and cons, some of which we have written about in the past.

Funds do provide many service benefits that investors continue to have preferences for.  

  • Clear and readily available performance reporting against similar funds, 
  • Consolidated tax reporting,
  • Decreasing management fees (the average MER on funds has declined ....) 
  • 1-800 customer support lines at all major fund companies, 
  • Detailed websites with daily updates
  • Regular reporting including financial planning newsletters
  • Monthly Pre-Authorized Contributions or Systematic Withdrawal Plans

and of course

  • Diversification
  • Small investment amounts
  • Professional management

Many of these services are not available when looking at alternative investment strategies.  While our publication is called the Mutual Fund Reporter, we will continue to look at alternative ways to help our clients manage and grow their wealth.

We welcome your questions at any time regarding your investments.

Fun With Numbers

We got great feedback last month on our fun with numbers feature.  So here is some more:

Over the last 10 years, 699 out of 742 (94.2%) of funds have a positive return.  Over 5 years, 842 out of 1649 (51.1%) of funds have a positive return.  Over 3 years, only 989 of 2818 (35%) show a positive return. Over one year, a meager 783 of 4299 (18.2%) funds have had a positive return.  (All figures to the end of April, 2003)

The good news, in April, 4415 of 4769 (92.6%) of funds posted positive returns, almost as many as the 10 year numbers.  Remember that all of the poor 1, 3 and 5 year numbers are included in the solid 10 year numbers.  The point being that ultimately markets drive performance.  And long term investors have had good performance in the vast majority of investment funds, while those just looking at 1, 3 or 5 year returns will be disappointed with the short term results.

Income Funds - Recommended Reading

Dynamic mutual funds has produced a terrific brochure outlining their lineup of income generating funds.  They break down funds that invest for interest income, dividend income, capital gains, return of capital or a combination of each.  Each kind of income has different tax status in taxable non-registered accounts, so the difference is important.

Looking at After Tax Returns - More Recommended Reading

Of further importance for non-registered (taxable) investment accounts, AIC funds have published a research report by university researchers Amin Mawani, Moshe Milevsky, and Kamphol Panyagometh.  The research shows that the ranking of more than 340 Canadian equity and balanced mutual funds is significantly different when done on an after-tax basis compared with pre-tax.  See the executive summary document for more.  Please contact us for a review of the tax effectiveness of your non-registered (non-RRSP or non-RRIF) investments.

Fund News - Trimark Advantage Bond Fund to be Capped, AGF Hires former Trimark Income Growth Manager Keith Graham 

AIM/Trimark has announced that their popular Advantage Bond Fund will be capped to new purchases effective May 30th, 2003.  We have liked this fund for many years, as it is a great way to invest in higher yielding corporate bonds, without taking on the risk of owning a single corporate issuer.  While we generally prefer buying government bonds directly rather than paying a management fee in a bond fund, in this case the MER is low, and well worth paying for the diversification and ongoing monitoring the managers provide on the high yield corporate bond portfolio.  Please contact us if you would like to own some of this fund before it closes, or for other recommendations from the high yield area.

AGF Funds Inc. has hired Keith Graham, an award-winning equity and balanced fund manager currently with AIM/Trimark Investments.  AGF announced that Graham will join AGF on Sept. 3. to enable Graham to respect a four-month no-competition agreement in his employment contract with AIM Trimark.  Graham was the lead manager since February 1999 of Trimark Income Growth, a terrific performing balanced fund which we have recommended in the past and will continue to watch as new managers are announced.

Mutual Fund Reporter Recommended Website of the Month 

A good place to get information on mutual fund performance, is www.morningstar.ca.  They publish the data that we reproduce on this site, and also are the source for the detailed information that clients receive on their accounts through ScotiaOnline.  Their fund ratings system with 1-5 stars is a good resource when reviewing fund performance.

 



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     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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