What was on the mind of investors as they pulled a staggering $8.45-billion out of mutual funds last month?
Probably something along the lines of the nightmare that awaits investors who held on to their funds and will shortly receive their October account statements. Globefund.com has some preliminary performance numbers for the month and they are ghastly in many cases.
Example: Mackenzie Growth, a Canadian-focused equity fund fell 32 per cent in October and 58.8 per cent for the first 10 months of the year. Example: Dynamic Power Canadian Growth, down 24.7 per cent last month and 46.5 per cent for the year to date. Example: TD Canadian Equity, down 21 per cent last month and 35.3 per cent for the year to date.
Selling in October's financial market confusion was the wrong move because major stock markets are up sharply from their lows of that month. But selling was an understandable move in light of the results turned in by some funds.
Globefund.com's numbers show that 32 Canadian, U.S., global and international equity funds lost 20 per cent or more last month, and another 193 or so lost 15 to 20 per cent.
Returns for the year through the end of October are even more telling. A total of 47 Canadian, U.S., global and international equity funds were down 40 per cent or more, and another 245 funds lost between 30 to 40 per cent. Final results could be worse because not all fund companies have reported their October results.
Investor anger toward the fund industry is bound to rise in the months ahead, but only some of it will be justified. It's true that fund companies continue to charge fees that are high by global standards, even while their clients are sustaining immense double-digit losses. It's also true that some fund managers were overexposed to U.S. financial stocks and commodities, two of the sectors hit hardest in the market downturn.
But losing money in and of itself is not a reason to be mad at the fund industry. The S&P/TSX composite and the S&P 500 stock index both fell about 17 per cent in what has been described as one of the worst months ever on the markets. Everybody suffered, funds included.
Did your fund lose more than its fair share? The way to tell is to measure your returns against the appropriate stock market index.
The preliminary Globefund numbers show us that some funds lost less than their benchmark indexes, and that's a victory in these troubled financial times. Example: TD Canadian Blue Chip Equity, which lost 12.2 per cent last month. Example: Ethical Canadian Stock, down 10.9 per cent. Those are significant losses, but in relative terms they're still a pretty good performance.
Investors who hold funds outside of a registered account could well take another hit later in the year, when mutual fund companies start making their year-end distributions. These distributions come about primarily as a result of a fund's sale of stocks at a profit. While few funds have actually made money for investors this year, some have been forced to sell stocks bought long ago to help fund investor redemption requests.
Distributions don't have any net effect on the value of your fund holdings, but they are a tax liability nonetheless. In a worst case, you could end up paying taxes from capital gains realized by a mutual fund that lost money. Note: If you have a fund in a non-registered account that you want to sell, do it in the next few weeks to avoid distributions.
Likewise, don't buy a fund for a non-registered account until after distributions are made in the latter part of December.
Selling investments at a time when the market seems to be in freefall is an emotional decision, which means there's no talking some people out of it.
But the fact that the stock markets are up something close to 18 per cent from their October lows shows how investors can lock in losses that would otherwise have eased.
Funds that were hit hard have participated in the market rise of the past couple of weeks. Take Power Canadian Growth - its unit price rose 18 per cent between Oct. 27 and Nov. 4. Or TD Canadian Equity, up 22 per cent in the same period.
The mathematics of recouping investment losses is cruel, however. Someone who owns a fund that is down 30 per cent this year would have to make about 43 per cent to get back to even. Cumulative returns of that size should be achievable in the stock markets over the next several years.
If you've sold your mutual funds and gone to something conservative, making back your losses will take a lot longer.
Mayhem in mutual funds
Here are some samplings of how equity mutual funds did in October, one of the worst months ever for the stock markets. The data are based on preliminary reporting to Globefund.com and may not include certain funds or fund families.
| Five big funds | ||
| Fund | Oct. loss | Year-to-date loss* |
| RBC Canadian Equity | - 16.5% | - 28.3% |
| CI Canadian Investment | - 14.5% | - 25.1% |
| CI Harbour | - 13.2% | - 20.6% |
| Mackenzie Cundill Value C | - 12.8% | - 26.4% |
| Trimark Select Growth | - 9.7% | - 24.9% |
| Five major losers | ||
| Mackenzie Growth | - 32.1% | - 58.8% |
| RBC O'Shaughnessy U.S. Value | - 24.8% | - 40.0% |
| Dynamic Power Canadian Growth | - 24.7% | - 46.5% |
| Mutual Beacon | - 21.5% | - 39.0% |
| TD Canadian Equity | - 21.3% | - 35.3% |
| Five October stalwarts | ||
| Brandes Global Equity | - 6.5% | - 32.7% |
| MD Growth | - 6.3% | - 25.9% |
| Standard Life Global Dividend Growth A | - 5.4% | - 21.8% |
| TD U.S. Quantitative Equity | - 4.6% | - 23.0% |
| Mackenzie Focus | - 3.9% | - 24.1% |
* year through Oct. 31
DOUGLAS COULL/THE GLOBE AND MAIL // SOURCE: GLOBEFUND.COM
