OK, before you hit that unfollow button I am not suggesting that Canada’s largest mutual fund is great. That said, even with the high fees the returns have been solid. Many Canadians have been able to build considerable wealth in some of Canada’s largest mutual funds. Let’s start with a look at the RBC Select Balanced Portfolio. It has been good but it has started to slip over the last 3 years. That can happen with actively managed funds. It should be no surpirse. We’ll also look at RBC Select Conservative and the RBC Canadian Dividend Fund.
RBC Select Balanced Portfolio
It has over $48.4 billion in assets under management AUM. The MER is 1.95%. The last trading expense ratio listed was .06% taking the total fees to over 2.0%.
Obviously this is a very ‘long running’ mutual fund. Many mutual funds get shut down or merge due to poor performance. The mutual fund industry likes to hide their mistakes and poor performance. Easy enough to just take them out of sight. Given that, it’s possible that other funds have been merged into this popular fund.
And it did not take long to find this on the site.
- This is a continuing fund resulting from a merger effective June 27, 2014.
I will look into the history. But this should be a continuous trail of funds or switches for RBC clients or fund investors who have been in this balanced asset allocation model.
Here’s the total return table to September 2023. Every $10,000 was turned into $85,000 from 1986.
If one was investing on a regular schedule they should have been able to build significant wealth. That wealth building would have been largely dependent upon the savings rate. Decent returns are present and accounted for.
That said, a level of underperformance has begun to surface in the last few years. When I first looked at the RBC Balanced Select Fund the returns were ‘not so bad’.
Here’s the history to end of November 2019 …
That’s not too bad. It trailed the lower fee Tangerine Balanced Portfolio in modest fashion by .4% annual over that 10 year period. There was some slight out-performance of the assets and the asset allocation compared to the simple Tangerine index-based approach. But that ‘out-performance’ is eaten up by the higher fees.
Is the fund still not so bad?
The fund has falllen on some tough times in recent years. Active management strikes again.
- Over the last three years a Balanced ETF Portfolio is up 4.0% compared to 1.9% for the RBC Balanced Fund.
- Over the last 5 years a Balanced ETF Portfolio is up 5.6% compared to 4.0% for the RBC Balanced Fund.
The above lists average annual returns.
Check out how to build a core ETF portfolio.
That is a considerable level of underperformance. The mutual fund has underperformed in each of 2021, 2022 and year to date in 2023. Yes, of course, it is time to leave this fund behind and move to a lower fee investment style.
Sadly, there is $48.4 billion invested in this fund.
This is a fund of funds asset allocation portfolio.
It has 35 holdings. Now that’s a busy fund.
Canada’s second biggest fund
Next up we’ll look at the second largest fund in Canada. Here’s the more conservative Balanced Income portfolio model from RBC.
The Select Conservative Portfolio.
The returns for this portfolio were also quite solid when I first took a look in 2019.
Once again, the fees can get in the way in modest fashion. But a Canadian would have been able to create significant wealth in this conservative model over time.
The recent returns update
The RBC Select Conservative Fund has also slipped in recent years.
Cash would have beat this fund over the last 3 years and 5 years, and perhaps 10 years. But we have seen some tough times recently for a Conservative Balanced portfolio model.
An ETF Portfolio with the same bond to stock allocation would be up just 0.9% over the last 3 years, and up 3.7% over the last 5 years, compared to 0.6% for the RBC fund.
Yes, it’s time to leave the RBC Conservative Fund as well. Sadly there is $35.2 billion invested in this fund.
The RBC Canadian Dividend Fund
Yes even mutual fund investors like their big dividends.
The returns have been lackluster. Investors are handing over a generous portion of the dividends and returns to RBC, and well, to me too as I am a RBC shareholder. Stop giving me your money, please. I’ll be OK.
Here’s the initial evaluation from 2019.
That fund was under-performing by about 2% annual. That is significant of course. The simple TSX 60 ETF XIU delivered 7% annual over that 10 year period.
Here is the returns update to October 2023. I’ve also offered a comparison to Vanguard’s Big Dividend VDY. Well, there is no comparison.
- RBC Dividend 3-year 11.4%
- Vanguard VDY 3-year 15.4%
- RBC Dividend 5-year 6.2%
- Vanguard VDY 5-year 8.7%
- RBC Dividend 10-year 5.9%
- Vanguard VDY 10-year 6.95%
Sadly there is $19.4 billion in this fund. And once again it’s time to leave this fund.
If you want some help or information on how to switch from high-fee mutual funds (RBC or otherwise) feel free to send me a note. Simply click on Contact Dale at the top of this post. I am more than happy 🙂 to help.
Rob Carrick looked at Canada’s top 100.
In June of 2018 Rob Carrick of the Globe looked at the largest 100 mutual funds in Canada. Here’s a snip of the top funds. I am assuming, given the growth in assets that the top 2 funds have held their positions.
What was interesting is that the top 100 only trailed their passive benchmarks by a modest amount. Below, the .85% represents the percentage under-performance vs the benchmarks. The 1.9863 figure represents the average MER of the top 100 funds.
Why do investors do so poorly?
Too often it’s bad behaviour. Investors are investing outside of their risk tolerance level. They get nervous in periods of market corrections, and they sell when the markets are down. They do not stay invested. Buy high, sell low.
When I was performing portfolio evaluations as an advisor at Tangerine Investments, I found the problem was often the fund choices of their external advisors. They were in a ragtag mess of funds all too often. There was a lot of fund switching used by advisors to create fees (for themselves). I would often witness returns well below that of savings accounts and GICs.
There are obviously many ‘solid’ mutual funds available. And if you have a fee-based advisor they can put you in the F-series mutual funds that will chop the fees considerably. There are lower fee offerings from Tangerine, Steadyhand, Mawer and Leith Wheeler.
That said, we can often do better with lower fees and ETFs. We can lower fees even more if we create a sensible portfolio of individual stocks.
Should you switch to ETFs?
To invest in ETFs you would have to self-direct your own investments. I think that’s the ideal route if you have the confidence and enough knowledge. You can access the greater financial plan by way of an advice-only planner.
For investment advice and a managed portfolio you can go with one of the Canadian Robo Advisors.
If you’d like a portfolio evaluation you can send me a note via that contact form. Or if you think you’re getting some ‘weird’ advice from your advisor I am happy to weigh in.
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