Private Capital

Let’s start off with something we can agree on. Mutual funds. More precisely, let’s agree on the need to dislodge them from any prominence they may have in our investment portfolios. There are a number of reasons for this.

The most important reason is that there are so many inexpensive alternatives to portfolio diversification available in the form of exchange traded funds (ETFs). Three providers of CAD denominated ETFs are BlackRock’s iShares, Claymore’s ETFs, and for those desiring a little more leverage, Horizons BetaPro ETFs.

The second reason is that its just no fun. Where is the excitement, the adrenaline rush, in waiting for the net asset value (NAV) of a mutual fund to be updated overnight? It’s much more fun to place a bet on a few well-researched stocks than to ‘buy the market’ as many fund managers do.

The third reason is that there does not appear to be any evidence that mutual fund managers are able to beat the market portfolio once all sales commissions and management fees are taken into consideration. Sure, every once and a while a few fund managers out-perform the market, but no one seems to do so in the long run. And who am I to predict who will be the star managers in the near future? Remember all those warnings on the mutual funds’ prospectuses: “Past performance is not necessarily indicative of future performance”. The regulators’ requirement for this disclaimer is totally justified.