your RRSP: Mutual funds or ETFs?
I've got the choice between a 0.49% MER fund that's returned 10.9% over 5 years, or a 2.15% MER fund that's returned 14.5% over 5 years. Is it a no brainer to go with the higher previous performer? What's the ETF alternative?
We've got a 10-15 year horizon to let them grow.
Sven.
Yes invest in the firm that is returning the higher net of fees. Also look at their risk profiles and what they are currently invested in, read the most recent audited FS/MRFP, then the AIF and the simplified prospectus. If it isn't published on the fund manager's website, you can look it up at www.sedar.com
If you have some flexibility in deciding where your money is going, look up the fund ratings on www.globefund.com or on www.morningstar.com
Paying higher fees, if the manager actually actively manages the portfolio can be good as it can help in reducing losses at the beginning of bear markets.
(Assuming that you are talking about a US Equity Fund)
Now the average of the two funds that you mentioned over the last five years isn't beating the market - which you should take into consideration. The S[HTML_REMOVED]P 500 returned 18.83% over that period whereby both funds underperformed. RE: ETF (most ETFs track an index, I am assuming here that you are talking about index tracking ETFs) your goal would be to match the benchmark index less the MER, so an ETF matching the S[HTML_REMOVED]P 500 over that period would have provided higher returns.
If you want a more comprehensive returns, you should be looking at the 10 year number, to see how those funds faired in the crash and post crash. Most funds went up from 2009 to date, as the market has had a strong bull run.
Lots of funds are boasting of their 5 year numbers right now, while their 10 year is shit due to the 2008 fiasco.
The fund where I work has returned 19.14% (net of MER) on 5 years, outperforming the market slightly. We also returned 9.13% on 10 years (after MER) beating the S[HTML_REMOVED]P's 7.78%.
(Assuming you are talking about a Canadian Equity Fund)
5 year S[HTML_REMOVED]P TSX was 11.01% and 10 years was 8.77 while we did 26.61% and 7.74% for those same periods.
In conclusion, make sure that you're comparing apples to apples, and if you're going ETF make sure that you understand the benchmark that the manager is using.
If you're investing in funds that rely on exotic derivatives, and you don't understand the fundamentals behind those derivatives, don't assume that the person investing in them for you does. Derivatives aren't bad per say, as they can allow a fund to mitigate or hedge against certain erratic market behaviour but some shit out there is set up to fail.
(all values as of June 30, 2014)
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