OK, there’s good news and bad news on the Canadian mutual fund watch. The good news is that Ontario has joined the rest of the Provinces to ban DSC or deferred service charges. A DSC fund will charge you a hefty fee of up to 7% if you want to sell your fund within a certain time frame. I will post a table on that advisor enriching practice in this post. On the other side of the mutual fund coin, fund companies are reporting more records sales for the first quarter. Yes, there’s more mutual fund crap on Cut The Crap Investing.
First to the nasty DSC stuff. IGM Financial (Investor’s Group) announced record-high Q1 earnings.
Assets under advisement in that segment at March 31, 2021 were $136.9 billion, an increase of 3.2% from $132.6 billion at December 31, 2020, and an increase of 24.2% from $110.2 billion March 31, 2020.
That’s a lot of loonies. I find a lot of their funds are uh, lacking what Canadians are looking for in their investments. We’ll have a quick look at one of their balanced funds. From the IG CI Canadian Balanced Fund – Series A fund fact sheet, here’s a look at the DSC fee redemption schedule.
The Deferred Service Charges
And the MER Management Expense Ratio for this fund is 2.71%. Yes Canadians pay these kind of fees with regularity. That could cut your retirement portfolio funding by 50%, 60%, even 70%. You’ll get hit hard in the accumulation stage and when you’re trying to pay yourself the 4-5% of the portfolio value each year (a typical retirement withdrawal percentage) you’ll be forking over that MER. More money might be going in the wrong pockets, compared to your pockets.
Just for fun, I did a quick check of the returns for this IG fund compared to a sensible low cost ETF portfolio. I used the Balanced Portfolio model on our ETF page, for comparison purpose. The portfolio is 60% stocks and 40% bonds. And ya, it’s no comparison.
The period is to end of March 2021. I used the Fund Library for the Investor’s Group Balanced Fund returns. I used portfoliovisualizer.com for the ETF portfolio returns.
That mutual fund is a little worse than average, but not by much. Once again, these are typical levels of underperformance for Canadians. Fees are wealth destroyers as Larry Bates will remind us. So are taxes, and inflation.
Ontario will join the rest of the country to ban DSC funds, but we can see that most of the damage is simple created by high fees and poor funds. It’s systemic within the type of investment. The removal of DSC funds is only one small ‘victory’. Canadians need to take charge and ban the process of owning high fee mutual funds.
Ken Kivenko offers an investor alert – DSC still breathes.
“Canadian securities regulators have done everything they could think of to permit
the toxic DSC to breathe as long as possible. They set a date far into the future for
the ban to take effect- June 1, 2022. The ban will prohibit the payment of upfront
sales commissions by fund organizations to dealers, and in so doing, discontinue
sales charge options that involve such payments, such as all forms of the DSC
option. No new sales would be permitted sales using the DSC option, but DSC
redemption schedules for all sales made prior to the effective date of the DSC are allowed to run their course in Ontario until June 2029.”
The all in one ETF option.
If you can buy a mutual fund, you can press a button and buy an asset allocation ETF portfolio.
If you want more of a holding hand you can use a Canadian Robo Advisor.
You might consider the Tangerine Portfolios.
Mawer is another wonderful option.
Successful investing can be very boring. Boring works. High fees don’t.
Please share this post. Friends don’t let friends pay high fees.
The Weekend Reads.
On MoneySense Jonathan Chevreau asks – how much real estate should you have in a balanced portfolio? Of course REITs can be an essential part of a well-balanced portfolio. It’s a real asset portfolio holding that can be a useful inflation hedge.
And I know you’ll like my weekly post for MoneySense. Celebrities and athletes get in on the next round of funding for Wealthsimple. The fintech that doesn’t stop is now valued at $5 billion. I also looked at some charts and tables that show that stocks actually don’t like too much good news and optimism. They might miss that wall of worry to climb.
For Million Dollar Journey I looked at investing in Canadian Retail Stocks. When you start digging, you can see how rich is the retail space. Investors who build their own stock portfolio certainly have an advantage.
On the Robo front I also updated my review of Nest Wealth, as they have recently increased their Netflix-like subscription fee levels.
The lowest fee Robo option in Canada is the Questwealth Portfolios from Questrade, now with little competition on the fee front.
If you are banking with CIBC you might check out Savvy New Canadians’ Investors Edge review. That is their discount brokerage offering.
For Canadian stock investors, you’ll enjoy this wonderful dividend calendar on Tawcan. Thanks Bob! That is a great resource.
On Findependence Hub, Steve Lawrie has some advice for us DIY’ers (Do It Yourself) investors. Here is the hidden costs of DIY.
There are changes ahead for the Eat Sleep Breathe FI blog. Yes it is more than difficult to keep growing that audience.
Renewables and the energy reality.
Renewable energy is the future on Passive Canadian Income. I have embraced that theme with an investment in the BATT ETF. I will keep adding to that over the years. That said, it appears that there will be more money to be made near term (and perhaps over the next few years) by way of traditional energy producers. The free cash flows that they can generate at today’s oil prices is more than impressive. This week many Canadian producers delivered incredible quarterly reports. Energy experts say that we are just getting warmed up (global warming pun, fully intended, and hopefully pardoned).
I am a big fan of the planet, but this is the energy reality. The green transition will take some time. The world still ‘needs’ an incredible amount of traditional energy.
The index had a very good week. We hold XEG in a few accounts.
Stocks and REITs
Mike The Dividend Guys says if you invest in stocks you must do this quarterly.
On stocktrades.ca, the Canada’s best monthly-paying stocks and REITs.
On the economic front, welcome Kirk Spano to Cut The Crap Investing. Kirk writes for Seeking Alpha and I’ve been following him for many years. This is a great post …
Long term deflationary and inflationary policy. From that post …
Moving on, we can see GDP shrunk about $2 trillion in 2020. However, the Fed balance sheet grew by over $3 trillion in response. Does that seem as if the pandemic were the only problem?
The COVID-19 pandemic gave central banks an excuse to oversaturate the financial landscape with monetary fertilizer. Liquidity injected into the financial system by the Federal Reserve, and other central banks, is on a scale never before seen.
From Kirk on the chart front.
And lastly, a look at Warren Buffett vs the market.
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Consider Justwealth for RESP accounts. That is THE option in Canada.
At Questrade, Canadians can buy ETFs for free.
I use and I’m a big fan of the no fee Tangerine Cash Back Credit Card. We make about $55 per month in cash back on everyday spending.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are still at 2.3%.
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