There is a menu of choices out there for your fee fare. Paying a fair fee for advice and investments is one of the most important aspects of your wealth strategy. It is also part of what inspired me to build my consulting business and name it “Wayfairer”, as I have come across too many people that don’t get fair value for the fees they pay. Fairness is not always about paying the lowest fee. It is about getting valuable advice and services. It is about getting outperformance versus passive investments like low-cost ETFs if you are paying for active management.
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Portfolio Pie
I like to think about the asset allocation of a portfolio as different pieces of a pie. You can choose from various ingredients to create a portfolio pie that best satisfies your needs. The asset mix of most Canadians’ portfolio pie contains a big piece of Canadian stocks and bonds. However, there is a much bigger pie to choose from, where Canada represents only a small slice. It helps to know what the size of the global investable pie is, and how it is divided up, before sitting down to take a bite of what is on offer.
Uh “O Canada”
We proudly sing “with glowing hearts we see thee rise” as part of our national anthem. Unfortunately, when comparing the performance of Canadian stocks to U.S. stocks over the last three decades my heart aches. At least we are in good company with value, small cap, international and emerging market stocks! Our Home And Native Land Canadian stocks make up around 30% of a typical 40% fixed income/60% equity balanced portfolio. While this is significantly larger than Canada’s 3% share of the global equity markets, it makes sense to have a home country bias given the currency risk of non-Canadian […]
Active Management: Drive Carefully
In my previous blog you saw that only one out of three actively managed balanced funds outperformed a low-cost ETF portfolio after fees. But does this mean that all the actively managed components of a balanced fund performed poorly? By examining the various asset classes and sectors you can see where you can keep driving ahead with active management, where you need to exercise extreme caution, and where you should slam on the brakes. Once again, I am looking from the perspective of investments in a RRSP or RRIF. The results improve for taxable accounts if your investment management fees […]
A Balanced Perspective On Balanced Funds
While Meatloaf sang “Now don’t be sad, ‘cause two Out Of Three Ain’t Bad” on the “Bat Out of Hell” album, looking at the performance of balanced fund managers will have you singing from a different song sheet. What ain’t bad is that over the last ten years about two out of three actively managed balanced funds outperformed the benchmark index. What is bad is that when you factor in their fees outperforming funds drop to one out of three, and worse for shorter time periods, if held in a RRSP or RRIF.
European Vacation
In the 1985 comedy “European Vacation”, starring Chevy Chase, the Griswold family wins a vacation tour across Europe where the usual havoc occurs. The movie’s Tomatometer score on Rotten Tomatoes is only 36%, with the critical consensus reading that it “…charts the course through a succession of pretty destinations, but the journey itself lacks the laughs…” This is an apt description if you look at the poor performance of European and international stocks versus U.S. stocks. Dreary Data I used the MSCI EAFE (Europe, Asia, and the Far East) index for international stocks. EAFE measures the return on large and […]
Emerging Is Perturbing
Emerging market stocks have underperformed U.S. stocks for a decade. This is despite expectations for the opposite given the higher risk and greater volatility. Is the turning point near? How does the performance of emerging markets relative to U.S. large cap stocks compare to U.S. value and small cap stocks? Measurement Minutiae Launched in 1988, the MSCI Emerging Markets Index (EM) captures over 1,400 large and mid cap stocks across 26 emerging market countries. The largest country weights are China at 39%, followed by Taiwan and South Korea at 12% each. The largest sector weights are Financials at 20% and […]
Think Small Not Big
June 7, 2020 Stocks that have a smaller total market value (small cap) have been underperforming stocks with larger market values (large cap) for many years, which is the opposite of what is generally expected. The trend has been big cap’s friend. When will it end? The Theory is Bleary The thinking is that small cap companies should have more room to grow and be quicker to realize opportunities than their larger counterparts. In addition, the prices of small cap stocks have been more volatile than large cap stocks, so investors should get rewarded for that extra risk over time. […]
Red Alert: Value is Value
June 4, 2020 It has been a long, tough road for value investing, with value stocks moving from cheap to cheaper versus growth stocks. While the trend has been in favour of growth investing, value stocks are normally expected to outperform growth stocks during a bear market. So far in 2020 that hasn’t happened. Value’s underperformance has accelerated. Although many reasons are put forward to explain the difference, I will focus on the data. Measurement Matters The standard practice to determine a value stock is by looking at the ratio of the stock price to the book value of assets […]
Is It A False Rally?
May 14, 2000 Thanks for the feedback I have received on the blogs, I am glad I have been able to provide some interesting history and guidance. I have done some work to answer a good question one reader asked: Do bear markets tend to have a “false recovery” followed by another significant decline like a lot of people are claiming this might be? Unfortunately, Yes It is just a matter of how much the market falls. I filtered out the small ups and downs by only looking at the first major rally in the bull markets. In the History is no […]