Managed vs Index

Peter Katevatis - Dec 19, 2013
Over the years there has been an ebb and flow of arguments regarding two main investment types. These are the: Managed investments with active managers Index investments using passive Exchange Traded Funds (ETFs). There is no magic answer as to wh

Over the years there has been an ebb and flow of arguments regarding two main investment types.  These are the:

Managed investments with active managers
Index investments using passive Exchange Traded Funds (ETFs).

There is no magic answer as to what type is best for you, but here is some history and items to consider when making your decision.

Traditionally, investors would invest using a mutual fund and receive professional management.  The first Canadian mutual fund was put together in 1932 by Canadian Investment Fund Ltd.  It operates today as CI Canadian Investment Fund.  The large growth in mutual funds began in the 1960s as they began to get mainstream traction.  After a lull in the 1970s and 1980s their use exploded in the 1990s to reach $426 billion by December 2001.  After some volatility in the 2000s total mutual fund assets in Canada now sit just under $1 Trillion.

Exchange Traded Funds (ETFs) are relatively new products and were born in Canada in 1989 with the Toronto Index Participation Shares which became known as the TIPS.  They have had remarkable percentage growth but still trail mutual fund in asset size by 15+ times as the total in 2012 was $56 Billion.

The main difference between mutual funds and ETFs are fees.  There is a general assumption that ETFs are cheaper but that is not always the case.  Since every major index has an ETF, the new ETFs are often hybrid mutual funds with some form of management.  This management has a cost and that cost is paid by the investor.

One of Canada’s largest individual funds is the RBC Canadian Dividend Fund.  It has a value over $15 Billion and an annual management fee of 1.78%.  A comparable large ETF would be the iShares S&P/TSX Index Fund which has a value of $11 Billion and a management fee of 0.18%.

Active management is going to cost a little more, but is it worth it?  Bill Gross wrote in his December Investment Outlook how as an active manager he prides himself on beating the passive bond index ETF of Vanguard.  One would think a good active manager should be worth the extra 1.6% (or so) you are paying in fees to justify their existence.

Canaccord works with some of the best active managers worldwide (to us there are no foreign markets), here are some of the highlights.

Barometer Capital – Canadian Equity, Global Balanced Equity, High Income

Bissett – Canadian Balanced, Canadian Dividend Income, Canadian Large Cap

CFG Heward Investment Management – Balanced Conservative, Balanced Moderate

Connor, Clark, & Lunn – Income & Growth, Canadian Equity

Guardian Capital – Canadian SRI Equity, Fixed Income, Global Dividend, Global SRI Equity

Jarislowsky Fraser – Canadian Equity, NA Balanced, NA Equity, Total Equity, US Equity

Mawer Investment Management – Canadian Equity, Balanced, Total Equity, International ADR

Sentry – Canadian Income

Sionna Investment Managers – Canadian Equity

Canaccord has recently added Lazard Asset Management to now include their Lazard International Equity Select for emerging markets exposure.

Canaccord also has 5 ETF Portfolio mandates for those clients who are looking for a more passive investment.  These are:

Capital Preservation ETF Portfolio – generates income and preserves capital

Conservative ETF Portfolio – 60% fixed income and 40% equity

Balanced ETF Portfolio – balance between long term growth and income

Growth ETF Portfolio – predominately equity looking for long term growth

Capital Appreciation ETF Portfolio – aggressive equity focused portfolio

These are a lot of names to sift through and that is what we can help you with.  Please reach out if you would like to discuss what is suitable for you.  In many cases a combination, based on your risk tolerance, of both ETF’s and managed money will help your investments grow.