Could You Have Picked the Winning Funds?

Last month I put together the Global Couch Potato’s 10-year report card. I calculated the returns of this simple index portfolio using data from TD’s e-Series index funds, including annual rebalancing. The annualized return of the portfolio from 2001 through 2010 was 4.03%. In a subsequent post I looked at how the Couch Potato stacked […]



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Last month I put together the Global Couch Potato’s 10-year report card. I calculated the returns of this simple index portfolio using data from TD’s e-Series index funds, including annual rebalancing. The annualized return of the portfolio from 2001 through 2010 was 4.03%.

In a subsequent post I looked at how the Couch Potato stacked up against other globally balanced mutual funds. But at that time, the only 10-year performance data I could get was what I looked up myself in annual reports. So even though it appeared that the Couch Potato did well during a turbulent decade, it was hard to say much more than that.

While researching my column for the June issue of MoneySense, however, I collected much more complete data. I called Morningstar and asked them to provide me with the 10-year returns for all Canadian mutual funds in two categories: Global Equity Balanced and Global Neutral Equity. These categories most closely resemble the Global Couch Potato, with its 40% bond allocation and its equity holdings spread across Canada, the US and international markets.

How many of these outperformed a portfolio of humble index funds? And could you have identified these winners in advance?

This could get ugly

Warning: the following paragraphs include mutual fund data that may be disturbing to active managers. Reader discretion is advised.

Let’s begin in the Global Equity Balanced category, where Morningstar had 54 funds with a 10-year track record. The average return of the funds in this category was just 1.76%, and only five (9%) outperformed the portfolio of index funds over that period.

In the Global Neutral Equity category, the news was slightly less dreadful. Among the 53 funds in the category, the average return was 2.98%. In this case, a whopping 10 of the 53 funds (19%) beat the Global Couch Potato’s performance over the last decade.

Overall, then, 86% of 107 comparable mutual funds in Canada — about six out of every seven — were unable to outperform an index portfolio during one of history’s worst decades for equities. (Who was it that said that indexing only works in bull markets?) Remember, too, that we’re not talking about a hypothetical index benchmarks here: the Couch Potato’s returns were calculated using the real-world performance of actual funds.

It must also be noted that Morningstar’s mutual funds returns do not account for the front-end loads that are tacked on to many of these funds. Many investors in the outperforming funds would not have achieved these returns because of these additional costs.

The Couch Potato Challenge

Proponents of actively managed mutual funds like to argue that they can identify good mangers and outperforming funds in advance. To find out if this true, I’ll issue a challenge. If any advisor can produce a verifiable document from 2001 (such as client newsletter or a list of recommend funds) that contains one of the 15 outperforming funds, and they can demonstrate that at least one of their clients held that fund for 10 years, I will buy him or her a steak dinner. I’ll even throw in a potato.

Here’s the list of all 107 funds and their annualized returns from 2001 through 2010:

Global Equity Balanced Funds Return
Vertex Managed Value Portfolio A 6.34
Mawer Canadian Diversified Investment 5.51
Leith Wheeler Balanced 5.48
CI Portfolio Series Balanced Class F 4.95
Mac Cundill Global Balanced Series C 4.23
Global Couch Potato 4.03
Trimark Global Balanced 3.91
CI Portfolio Series Balanced 3.81
National Bank Growth Portfolio 3.37
Primerica Moderate Growth 3.21
Primerica Growth 3.15
Keystone Investment Maximum Long-Term Gr 2.75
Investors Growth Plus Portfolio C 2.70
CIBC Very Aggressive Portfolio Non-RSP 2.64
RBC Select Growth Portfolio 2.47
CIBC Growth Portfolio Non-RSP 2.45
CIBC Very Aggressive Index Port Non-RSP 2.44
Northwest Growth and Income 2.31
Mac Ivy Global Balanced Series F 2.31
CIBC Very Aggressive Index Portfolio RSP 2.27
Keystone Investment Long-Term Growth 2.25
BMO MatchMaker Strategic Growth Port 2.23
Mac STAR Canadian Maximum Long-Term Gr 2.09
Caldwell Balanced 2.07
Keystone Maximum Long-Term Growth 1.92
Mac STAR Investment Max Long-Term Growth 1.74
Russell LifePoints LT Growth Port Sr B 1.69
CIBC PRS Growth Non-RSP Portfolio 1.49
CIBC IPRS Growth Non-RSP Portfolio 1.47
National Bank Growth Diversified 1.38
Mac Ivy Global Balanced 1.23
TD Mgd Idx Agrsv Growth Pt – e 1.21
CIBC APRS Growth Non-RSP Portfolio 1.12
RBC Select Choices Growth Portfolio 1.03
CIBC IPRS Growth RSP Portfolio 1.00
TD Mgd Aggressive Growth Port I 0.94
TD Mgd Idx Agrsv Growth Pt – I 0.90
Investors Tactical Asset Allocation C 0.86
CIBC IPRS Agrsv Growth Non-RSP Portfolio 0.82
CIBC APRS Agrsv Growth Non-RSP Portfolio 0.79
CIBC PRS Growth RSP Portfolio 0.78
Fidelity Global Asset Allocation Sr F 0.63
Mac STAR Foreign Maximum Long-Term Gr 0.62
CIBC PRS Agrsv Growth Non-RSP Portfolio 0.59
National Bank Protected Growth Balanced 0.51
Mac STAR Maximum Long-Term Growth 0.42
CIBC IPRS Agrsv Growth RSP Portfolio 0.39
TD FundSmart Mgd Aggressive Growth I 0.37
CIBC APRS Growth RSP Portfolio 0.25
CIBC APRS Agrsv Growth RSP Portfolio 0.09
CIBC PRS Agrsv Growth RSP Portfolio -0.11
Fidelity Global Asset Allocation Sr B -0.50
Fidelity Global Asset Allocation Sr A -0.63
Acuity Pooled Global Balanced -1.27
CI International Balanced -1.62
Category average 1.76%

Source: Morningstar

Global Neutral Equity Funds
CI Signature High Income 10.44
CI Signature Income & Growth Class F 8.35
Dynamic Value Balanced 8.34
CI Signature Income & Growth 7.36
Mawer Canadian Balanced RSP 5.91
Mac Cundill Canadian Balanced Series C 5.77
CI Portfolio Series Conservative Class F 5.68
Dynamic Strategic Growth Portfolio 5.31
CI Portfolio Series Conservative 4.54
McLean Budden Balanced Growth 4.26
Global Couch Potato 4.03
RBC Select Conservative Portfolio 3.87
RBC Select Balanced Portfolio 3.21
RBC Balanced Growth 3.14
Keystone Long-Term Growth 3.03
TD Mgd Idx Inc & Mod Growth Port – e 2.73
CIBC PRS Balanced Non-RSP Portfolio 2.68
BMO MatchMaker Strategic Balanced Port 2.67
Mac STAR Investment Bal Growth & Income 2.64
Keystone Investment Cons Income & Growth 2.59
CIBC IPRS Balanced Non-RSP Portfolio 2.54
Mac STAR Canadian Balanced Growth & Inc 2.49
TD Mgd Inc & Mod Growth Port I 2.43
TD Mgd Idx Inc & Mod Growth Port – I 2.42
Mac STAR Inv Conservative Income & Gr 2.42
Keystone Conservative Income & Growth 2.25
Mac STAR Conservative Income & Growth 2.24
RBC Select Choices Balanced Portfolio 2.23
CIBC IPRS Balanced RSP Portfolio 2.21
Mac STAR Canadian Long-Term Growth 2.18
Russell LifePoints Bal Growth Port Sr B 2.15
CIBC IPRS Bal Growth Non-RSP Portfolio 2.14
TD FundSmart Mgd Inc & Mod Growth Port I 2.13
TD Mgd Idx Bal Growth Port – e 2.10
Mac STAR Balanced Growth & Income 2.08
CIBC APRS Bal Growth Non-RSP Portfolio 2.04
CIBC PRS Balanced RSP Portfolio 2.02
CIBC APRS Balanced RSP Portfolio 2.01
Keystone Balanced Growth & Income 2.00
Keystone Investment Balanced Gr & Inc 2.00
CIBC PRS Bal Growth Non-RSP Portfolio 1.94
TD Mgd Balanced Growth Port I 1.85
TD Mgd Idx Bal Growth Port – I 1.78
CIBC IPRS Bal Growth RSP Portfolio 1.75
National Bank Balanced Diversified 1.71
CIBC APRS Bal Growth RSP Portfolio 1.49
TD FundSmart Mgd Balanced Growth I 1.49
CIBC APRS Balanced Non-RSP Portfolio 1.46
Mac STAR Long-Term Growth 1.38
Mac STAR Investment Long-Term Growth 1.31
CIBC PRS Bal Growth RSP Portfolio 1.28
National Bank Protected Retirement Bal 0.61
Mac STAR Foreign Balanced Gr & Inc 0.48
Category average 2.98%

Source: Morningstar

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