By ROB CARRICK
Wednesday, April 11, 2018
Your best chance of owning an ETF-beating mutual fund is in the Canadian dividend and income category.
A scorecard comparing actively managed mutual funds against their benchmark stock indexes shows a marked pattern of underperformance for mutual funds, except among Canadian dividend funds. Almost 58 per cent of dividend and income equity funds beat the S&P/TSX Dividend Aristocrats Index in 2017, by far the best showing of any fund category.
The SPIVA Canada Scorecard from S&P Dow Jones Indices is a long-running exercise in comparing actively managed funds to indexes that investors can buy into directly via exchange-traded funds. S&P Dow Jones is a big player in indexing, so its scorecards have to be viewed to some extent as an exercise in brand-building.
But they're also a useful reminder of how frequently actively managed funds fail to match up to indexes you can buy into through ETFs. Of course, ETFs have fees that cut into the returns of the indexes they track.
The counterargument is that ETF fees have steadily fallen in recent years through the kind of intense price competition you just don't see in the mutual fund business.
The SPIVA scorecard found that just 6.8 per cent of Canadian equity funds beat the S&P/TSX Composite Total Return Index last year, 30.6 per cent of U.S. equity funds outperformed the S&P 500 (in Canadian dollars) and 27 per cent of international funds outperformed their benchmark.
Longer-term underperformance was also pronounced, except for dividend funds. A bit more than 46 per cent of dividend funds beat the index in the past three-year period, and 40.5 per cent were index-beaters over the past five years.
No dividend funds beat the index over the past 10 years, which is a sad showing. But for more recent periods, dividend funds have been more competitive against index investing than any other type of fund.
Ten dividend and income ETFs made the latest instalment of the Globe and Mail ETF Buyer' Guide, many of them indextrackers. Returns for these funds were kind of dismal over the past one-, three- and five-year periods. Some Canadian dividend mutual funds to investigate as alternatives are Beutel Goodman Canadian Dividend D, Dynamic Dividend Series A, Leith Wheeler Canadian Dividend Series B and RBC Canadian Dividend Series D.
They're all comparatively low cost by mutual fund standards, with strong long-term results.