Tim Wiggan is CEO, TD Asset Management
| $4-B | The economic activity of the mutual funds industry in 2012 contributed $4-billion to the federal government and $3-billion to provincial governments. (Conference Board of Canada, 2013) |
Selecting a fund manager is a decision that requires careful consideration, as well as "doing your homework," says Tim Wiggan, CEO, TD Asset Management. "Whether you are just starting your investment journey or are already further along, you need to take the time to understand whom you are doing business with, whom you are entrusting your money to," he explains.
Especially in times of high volatility, it pays to be thorough, says Mr. Wiggan, who adds that "reputation matters.
"Fortunately in Canada, we have a number of high-quality asset managers who have a good track record over long periods of time. In my opinion, you want to see how they have performed during difficult times."
Yet before selecting a fund manager, investors need to be clear on their goals, says Mr. Wiggan, and that's where advice plays an important role. "An adviser would sit down with clients and determine what they are trying to accomplish. Let's say one individual's goal is growing his or her portfolio over a long period of time. Another individual would like to generate income from a portfolio.
"Once those objectives are determined, you and your adviser would partner with an asset manager who manages your money against those goals," he adds. In the two examples, the adviser would look for stable income-generating funds on the one hand and growth funds on the other.
| “Fortunately in Canada, we have a number of highquality asset managers who have a good track record over long periods of time. In my opinion, you want to see how they have performed during difficult times.” |
| Tim Wiggan is CEO, TD Asset Management |
Mr. Wiggan explains that there is a wide range of mutual funds available in Canada, allowing investors to find a solution that fits their personal objective.
By combining assets from many individuals, mutual funds create efficiencies for investors, who share administrative costs and gain access to money management services.
"With mutual funds, the numbers are generally so high that a range of investors – from individuals to large pension funds – are served by the same team of the best and brightest," Mr. Wiggan explains. This affordable access to professional investment management – which would otherwise be quite difficult to attain with small amounts of capital – also allows for the delivery of additional services, such as quarterly statements and records for tax purposes.
Transaction costs like commissions and fees that apply to active funds are also divided between a large number of investors. "It's an efficient way for an individual to gain access to expertise through the power of the collective," Mr. Wiggan adds.
Since advisers as well as managers are actively involved in creating and realizing a plan, both their efforts are reflected in the fees investors pay. "In addition to the advice fee, you have an asset management fee, which gives you exposure to the experts who manage your money," he says.
Any company that offers funds to the public makes a range of information available online or in printed material. This can aid investors and advisers in the decision-making process – it can also help in choosing a fund manager, Mr. Wiggan states.
| PLANNING |
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| FINANCING THE FUTURE: RETIREMENT READINESS One of the core activities of the investment funds industry is dedicated to helping Canadians build wealth to sustain them in retirement. As Canadians live longer, a higher percentage of them will need to rely on individual savings and public pensions. Are they prepared? According to a McKinsey & Co. report, 83 per cent of Canadian households are on track to maintain their standard of living in retirement. The remaining 17 per cent, mostly middle-class Canadians, will face challenges that originate mainly from a lack of long-term savings preparedness, not a lack of income or resources. The report also notes that Canadians’ savings in mutual funds of $1.2-trillion are 2.5 times the assets being managed within the Canada and Quebec pension plans. Mutual funds account for 47 per cent of all wealth held in RRSPs, and research demonstrates that individuals who invest in mutual funds are not only better prepared for retirement, they also report higher levels of confidence about their retirement readiness. |
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| 85% | 85% of Canadians’ mutual fund purchases include advisory services paid through the fund, rather than through a separate fee. (Investor Economics, 2014) |
| Mutual funds With more than 2,800 different mutual funds available in Canada today, there is a solution designed to match every investor’s need. |
Mutual funds features
What sets mutual funds apart from other types of investments?
Easy entry
Ability to start investing with a small amount of money (a single investor can purchase units of a fund for as little as $50).
Allows investors to set up regular contributions.
Provides daily liquidity.
Efficiency
Allows individuals, including those with smaller amounts of savings, to combine their money into a single pool that can be efficiently invested.
Provides instant diversification, based on the chosen mutual fund.
Having multiple investors investing in a mutual fund enables those investors to collectively achieve the capital scale required to purchase a diversified portfolio of securities.
Access
Affordable access to professional investment management, which would otherwise be quite difficult (if not impossible) to create with a small amount of capital.
Simple access to a wide array of investment vehicles, such as foreign and domestic stocks and bonds.
Can be purchased directly, or under the guidance of an investment adviser. The financial advice channel is the predominant sales channel in Canada, with many independent and bank- and insurance-owned distribution networks servicing investors.
Safeguards
Process is highly regulated to ensure that the money is invested in a prudent manner and provide various best practices and investor protection features.
Types of mutual funds
1 Fixed income funds
Generally made up of: government bonds, investment-grade corporate bonds and high-yield corporate bonds
The risks and returns associated with fixed income funds vary depending on the average time to maturity (longer-term maturities will fluctuate more in price as current interest rates change) and credit rating (corporate bond funds generally pay higher returns and are riskier than those made up of government bonds) of the assets within the fund.
Interest and any capital gains earned on these investments are paid out to investors in cash or in the form of more fund units, or both.
2 Money market funds
Generally made up of: short-term fixed income securities such as government bonds, treasury bills, bankers' acceptances, commercial paper and certificates of deposit.
Money market funds are a low-risk place to park your money while you decide where to invest or until you need it for life expenses like the down payment on a home.
Unlike bank and credit union savings accounts, money market fund units are not guaranteed. Their lower risk stems from owning lower-volatility assets.
3 Equity funds
Generally made up of: Stocks.
Equity funds aim to capture and distribute economic growth by owning shares of companies. Compared to money market and fixed income funds, there is a greater potential for higher returns along with a higher risk you might lose money, especially if you cash out during times of high volatility.
There are many types of equity funds along a risk-reward continuum, from higher-risk small-cap growth stocks to lower-risk large-cap dividend stocks.
4 Index funds
Generally made up of: Assets meant to replicate the performance of a specific index.
Index funds use different strategies to replicate – as much as possible – the performance of a market index (a theoretical basket of holdings designed to represent the value of all the holdings in that market).
The risks and returns of the fund depend on the performance of the index, as well as the accuracy of replication. Index funds usually have lower costs because research and trading costs are minimized.
5 TARGET DATE FUNDS
Also called target-based or life-cycle funds, target date funds are designed to align with the investor's investment horizon, maturing on a target date such as the investor's retirement. The fund's asset allocation mix is adjusted over time, allowing a higher-risk growth strategy in the early years and reduced risk as the target date approaches.
6 Specialty funds
Generally made up of: Assets representing a specific sector, such as resources, real estate or socially responsible companies.
Many investors want to invest more heavily in particular sectors, and specialty funds are designed to fulfill that goal.
7 Balanced funds
Generally made up of: Stocks and bonds.
A one-stop, balanced solution for investors who want to keep it simple, most balanced funds use a set formula such as 60 per cent equity, 40 per cent fixed income.
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation.