It turns out Mackenzie Financial has been “fighting back” against index funds for years. Check out this column titled “Exploding fund myths” in the Financial Post dated August 10, 2004. It features two tables listing the top-10 funds in the Global Equity and Canadian Equity category and shows 10 out 10 Global funds outperforming the MSCI World Index (in C$) and 7 out of 10 funds outperforming the TSX Composite index in the 5-year period to June 30, 2004.
Let’s imagine that an interpid mutual fund investor, Ted, comes across the column in the newspaper in 2004 and thinks to himself: “Gee! This is hot stuff. Every one of the 10 mutual fund managers have beaten the benchmark in the Global Equity category. You can’t really go wrong hiring these super smart guys to invest internationally for you.” With Ted, to think is to act, so he calls his financial advisor and asks to invest an even $10,000 in each of the top funds.
It’s now 2009 and a good 5 years have passed since Ted bought into Mackenzie’s logic and invested his hard earned money in its list of super duper funds. And — you know where I’m going with this — here’s what he finds:
Performance of Large Global Funds from July 2004 to August 2009
| Fund | Fund Market Value | Index Market Value | Difference | Difference % |
|---|---|---|---|---|
| Templeton Growth | $9,264 | $9,917 | ($653) | (6.6%) |
| Trimark Select Growth | $7,792 | $9,917 | ($2125) | (21.4%) |
| AGF International | $11,462 | $11,258 | $204 | 1.8% |
| MD Growth | $9,917 | $9,197 | $720 | 7.8% |
| Fidelity International Portfolio | $8,545 | $9,917 | ($1,372) | (13.8%) |
| Trimark Fund | $8,668 | $9,917 | ($1,249) | (12.6%) |
| Ivy Foreign | $10,657 | $9,917 | $740 | 7.5% |
| CI Global | $8,377 | $9,917 | ($1,540) | (15.5%) |
| Investors Global | $12,291 | $9,917 | $2,374 | 23.9% |
| Cundill Value | $10,374 | $9,917 | $457 | 4.6% |
| Total | $97,347 | $99,791 | (2.4%) |
Performance Data Source: Globefund.com Mutual Fund Database
Ted is surprised to find that over the next five years:
- His equal weighted investment in the ten largest funds trailed the index by a cumulative 2.4%.
- 5 out of 10 funds trailed their benchmark index.
- 4 out of 10 funds trailed their benchmark by more than 10%.
- 1 out of 10 funds beat the benchmark by more than 10%.
- Trimark Fund dropped out of the list. Fidelity International Portfolio changed its name to Fidelity Global Fund. AGF International was reclassified as International Equity. Investors Global handily beat the index but the Globe Fund database notes the inception date as 2002 and it is not clear if the fund is the same one as Investors Global – C whose returns are noted here.
Finding that the chances of picking a winning fund were no better than a coin toss, Ted figures the only way he can pick outperforming funds over the next five years is getting a peek at Mackenzie’s marketing brochure from 2014. Sadly, Mackenzie’s “research” department isn’t putting it out anytime soon.
