June 19, 2013

The Long Term Benefits of Active Investment Management

As a follow up to the piece we published last year titled, ETFs: Pros, Cons and Misconceptions, which compared ETFs to actively managed mutual funds we would like to highlight the article How Canadian equity funds compare to ETFs that was recently published in The Globe and Mail.

The basis for The Globe and Mail’s conclusions was a screening of the 10 year track records of the top Canadian equity funds and ETFs. The results of the analysis illustrate, consistent with our original contention, that on an after-fees basis actively managed funds with reasonable fee structures do have the ability to outperform their ETF counterparts over the long-term. Admittedly this is a difficult task given the low fees charged by most ETFs, but we are pleased to report that the Leith Wheeler Canadian Equity Fund is one of a handful of actively managed funds to achieve this goal over the last 10 years.

Generally speaking, the potential for actively managed funds to outperform ETFs is based on their managers’ ability to add value by avoiding unattractive investments that are a member of the index an ETF is designed to replicate (and/or overweighting index members that they feel have above average risk-adjusted return potential). In our view, this ability to select investments based on their merit, rather than their weight in a reference index, should mean that actively managed funds have an attractive tool to control risk and enhance returns at their disposal.  The actively managed funds that have proven they can capitalize on this advantage over the long-term, while charging a reasonable fee, should be a worthy component of a well-constructed portfolio.

This article is not intended to provide advice, recommendations or offers to buy or sell any product or service.  The info provided in this article is compiled from our own research and is based on assumptions that we believe to be reasonable, accurate at the time the report was written, but, is subject to change without notice.

Leith Wheeler Investment Counsel Ltd. is the manager and primary investment advisor for the Leith Wheeler Mutual Funds. Leith Wheeler Investment Funds Ltd. is the principal distributor of the Leith Wheeler Mutual Funds.

Leith Wheeler Mutual Funds are also distributed through authorized dealers. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed or covered by the Canada Deposit Insurance Corporation, Leith Wheeler, or any other deposit insurer. Fund values change frequently and past performances may not be repeated. The unit value of money market funds may not remain constant.

Michael Job

Principal, Portfolio Manager - Private Clients & First Nations