I thought it would be interesting to pass along some high level information on world wealth. The numbers and charts are from the latest UBS Global Wealth Report, which looks at data as of the end of 2022. I found UBS’s highlights of where the wealth is, the number of millionaires, and the concentration of wealth eye-opening, and the inequality between the top and the bottom of the wealth pyramid eye-popping.
Category: Wealth Strategy
Foreign Fund Facts
In last month’s blog Fun Fund Facts I looked at the performance rankings of Canadian equity funds. The facts showed that over longer time periods there was more of a tendency for bottom funds to remain in the bottom quartile than for top funds to remain in the top quartile, and that using deciles to screen is better than using quartiles. I have expanded the fund facts to those that invest in foreign stocks. Let’s see how the top and bottom decile Canadian equity fund results compare with the results for the top and bottom decile global equity funds.
Fun Fund Facts
When looking at investment funds (pooled or mutual) it is natural to want to keep the top performing funds and ditch the worst performers. But is this a good approach? To help answer this question, at least for Canadian equity funds, I had some fun with the funds’ facts on historical return rankings.
Are Big Banks Better At Canadian Funds?
Last month I looked at the performance of the big bank balanced mutual funds, which was unsurprisingly underwhelming. This month I dig deeper by looking at the big banks’ biggest Canadian equity and fixed income funds. Do their performance results show they have a competitive advantage investing in their home markets given their knowledge and experience with Canada’s economy, businesses, and markets?
Can you bank on big bank balanced funds?
The big banks in Canada dominate the $1.8 trillion market of long-term mutual funds in Canada, with a 50% share of the funds outstanding. And within long-term mutual funds, balanced funds represent the largest portion at 50%[1]. Clearly Canadians have a lot of their money in the big bank balanced mutual funds. Given how important these funds are to the retirement plans of Canadians, let’s look at the performance of the Big 5’s big balanced mutual funds vs a passive portfolio of ETFs. Do the vast resources the big banks spend on research teams and portfolio management result in outperformance?
Balanced vs Bench Better?
Just over two years ago I wrote A Balanced Perspective on Balanced Funds on the performance of Canadian balanced funds compared to their benchmark. I focused on the longer-term results over 3, 5, and 10 year periods, looking both before fees and after fees. I thought the time frame was interesting back then because the end date was March 2020, the previous bear market. Given the massive rally that happened after that, and the bear market we are in now, I have revisited how Canadian balanced funds are doing in terms of keeping up with or exceeding their benchmark returns. Have they been able to add extra return through the big ups and downs in the markets?
It’s Different This Time, Again
So far in my career I have experienced 6 bear markets and 4 (probably going on 5) recessions. What has this taught me? That while every time is different, every time there are similarities too. In 2022 two different things are the Russian invasion of Ukraine and the cryptocurrency bust. The things we have seen before are high inflation, growth stocks breaking down, and central banks raising interest rates. Watching your portfolio go down during a bear market is stressful. But looking back over the last 100 years, as a group the businesses that constitute the stock markets have been able to adapt and move through the tough times and return to generating profits for their investors.
Advisor Advice
Wealth management, like in any other profession, has good advisors and wealth management firms and average ones. Below that are the “others”. How do you assess yours, and how do you avoid giving your hard-earned wealth to the “others”? Based on my experience, I have put together a list that you can use to assess your advisor and firm. You can also use it to evaluate other providers if you are not satisfied with your current one.
Lifetime Learning
Investing in the markets keeps you humble. The returns are hard to forecast. There are many risks to consider and measure. And your behavioural biases and those of investors as a group often get in the way of making the best decisions. I consider myself fortunate to have learned many great lessons from some of the best people, especially earlier in my career. I wish I could say that everything I learned was through avoiding mistakes and losses and making only big risk adjusted returns. But that isn’t the case, and it isn’t realistic. I also learned from my own mistakes as well as those made by others in the industry. This month I am sharing some of the most valuable lessons I have learned (so far!).
Alternative Asset Allocation: Tricks and Treats
The trick to adding alternative assets to your asset allocation is to utilize a rigorous process. This avoids the scary scenario where you have the wrong assets in your allocation or the wrong weightings on the assets. With the right approach, your treat is getting the optimal asset allocation relative to your risk profile and your needs.