The underreported scandal of the mutual fund industry is that there are billions of dollars sitting in sub-par funds that are reliable fee generators for the companies that offer them and nothing more. Here are some examples. Note: What follows is a snapshot of crummy funds at a moment in time. Every dog has its day, which means that any one of these funds could be doing well at the moment you're reading this.
Past results are not a definitive indicator of future returns, but you can't ignore them, either.
1. AIC Global Advantage, AIC American Advantage: The AIC Advantage Fund was, at one time, a performance leader among Canadian mutual funds thanks to a timely emphasis on financial stocks. The massacre of this sector between 2007 and 2009 hurt this fund mightily, but we can write this off as a somewhat predictable outcome for a fund heavily (and, defensibly) tilted toward a single sector. What's hard to accept is the fact that AIC created U.S. and global spinoffs of this fund that were also slammed in the global financial crisis. Note: Both these funds were laggards before the market crashed. On the bright side, they were certainly candidates for investors who wanted to buy low in the financial sector in 2009.
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2. CIBC Canadian Equity: A Canadian equity fund with a 10-year compound average annual return of 1.7 per cent? What's the point of that? A Canadian money market fund would have made you 2.7 per cent over the 10 years to December 31, 2008, with virtually no risk. There's plenty of risk with this fund - in 2008 it lost almost 38 per cent, about five percentage points more than the S&P/TSX composite index. Ouch.
3. Dynamic Money Market: Impressively consistent in one regard- it regularly underperforms the average Canadian money market fund by a small amount. Why would that be? Look no further than the 1.30-per cent management expense ratio (that was the MER of record at the time this was written), which compared to a category average of 1.03 per cent. You won't find a much better example of how paying more for a fund leaves you with less.
4. Fidelity Global: Fidelity is the world's largest fund company, and it's a classy outfit that, I think, tries to do right by its customers. This fund's a dog, though. It's consistently below average, so there are no excuses to be made from the fact that global funds in general were a sinkhole through much of the 2000 decade. In 2008, for example, its loss of 36.1 per cent was about five percentage points worse than the average. Over the previous 10 years, it was a couple of points worse than average. From a blue-chip firm like Fidelity, you expect better.
5. Templeton Canadian Stock: The Templeton fund family's edge is global investing, notably through its flagship Templeton Growth Fund. This Canadian equity fund is a complete dud, though. It did modestly better than the S&P/TSX composite index in the treacherous market conditions of 2008, but its longer-term numbers underperform both the index and the category average with dismal consistency. Don Reed, president of Franklin Templeton Investments, took over the fund in June 2008, so take a look to see how things have gone lately.
6. Trimark Discovery: Trimark is among the most conscientious companies in the fund business, and has a respectable stable of funds. And then there's Trimark Discovery, an attempt to cash in on the technology boom of the 1990s. Look at the long- and short-term numbers and it quickly becomes apparent that, apart from a few years in the late 1990s, this fund has struggled. (Trimark seems to have agreed. In summer '09 this fund was merged into another Trimark fund.)
Excerpted from Rob Carrick's Guide to What's Good, Bad and Downright Awful in Canadian Investments Today . Copyright © 2009 by Rob Carrick. Published by Doubleday Canada. Reproduced by arrangement with the Publisher. All rights reserved.