The Globe and Mail carried a story over the weekend on mutual funds that have lost money over the past 10 years. Most of the funds in the list track asset classes that have experienced poor returns over the past decade. For instance, the list includes Science and Technology funds (NASDAQ’s 10-year return (in C$): -6.6%), Japanese Equity (MSCI Japan’s 10-year return (in C$): -5.5%), US Equity funds (S&P 500 C$ return: -4%) and one venture capital fund (no surprise there). You can hardly fault a fund for poor returns if the benchmark it tracks also exhibits poor returns.
But the fund that tops the list has no such excuse. The Mavrix Canadian Growth fund has returned -11.3% over 5 years, -19.5 over 10 years, -10.2 over 15 years and -7.2 over 20 years. The fund calls itself a “go-anywhere fund” but whichever benchmark you look at, there is only one way to describe the performance: it stinks. The BMO Canadian Small Cap Index has returned 8.9% over 10 years and the TSX Composite, a not-too-shabby 6.4%. Over 20 years, the Small Cap Index sports a return of 7.6% and the TSX Composite 7.7%.
A quick example will show how poor this performance is. A $10,000 investment in the BMO Canadian Small Cap Index would have grown into $45,000 over 20 years. The same amount in the TSX Composite would have grown into $46,000. An investor unfortunate enough to invest $10,000 in the Mavrix Canadian Growth would be left with… drum roll please… $2,280.
Many investors opt for active management in the hope that they can earn better returns than the benchmarks. When they do, they also run the risk of dramatically underperforming the indexes. The Mavrix Canadian Growth Fund is a perfect illustration of this risk.
