writing » consumer test drive

For sale: 1979 vintage Pinto, low mileage, great colour, beautiful seat covers!

And if you don't know that these cars tend to blow up in minor rear-enders, that's your problem.

OK, perhaps comparing mutual fund companies' Web sites to used car ads is a little unfair. But if you rely solely on fund marketers' online tools in evaluating their offerings, you may find your portfolio engulfed in flames and be left wondering why.

These days, consumers increasingly head online to research their investments. And one of the first places they tend to look are the sites of companies whose funds they either own or are interested in owning. Recognizing this, fund firms have beefed up their sites in the last couple of years with new tools and information to market their products. Sites that used to be largely “brochure-ware” featuring stock photos of smiling investors playing golf are now full of tabular data and graphs that — in some cases anyway — allow clients to contrast, compare and try out various scenarios.

Still, the self-directed investor who wants to research comparative performance and fund holdings online is clearly not the model customer of most large fund players. Companies like Investors Group, Mackenzie and AIM Trimark largely rely on a network of advisors and dealer/brokers to explain and sell their offerings.

“The Internet is a really great place to research financial products, but it's not a very good place to get advice,” says Neil Taylor, director of marketing at Investors Group. “Our advisors sit down with their clients twice a year and go over all of those details but in the larger context of clients' overall goals.”

What Investors Group and others are saying is that the intricacies of management expense ratios (MERs), load fees, sector weightings and other complex analytics are best explored with an experienced guide. This a little information is a dangerous thing position is not without merit. Doctors have long lamented the difficulties of ministering to Internet-fuelled patients who arrive self-diagnosed and armed with pharmaceutical shopping lists.

Yet with mutual fund practices making scary headlines, investors are growing more concerned — and informed — about how their retirement nest eggs are being managed. And, advisor or not, what the fund companies reveal about their products is one of the many criteria useful in making investing decisions.

To make an informed fund purchase, you should be able to compare the following elements:

• MERs and fees
• Fund asset size (total money invested in the fund)
• Various terms of fund performance (last six months, a year, since inception)
• Top holdings (what securities the fund holds and in what percentages)
• Churn (how much of the fund is being sold or bought)
• Geographic and sector weightings (the fund's exposure to certain industries or areas of the world)
• Distribution history (has the fund paid out periodic bonuses to investors?)
• Comparative analysis (performance vis-a-vis similar funds or relevant index)

FP Money has surveyed the online tools of the five biggest mutual fund firms (based on total assets under management) to see how well they cover these bases.

The good news is, there are many excellent features on these sites. Most allow you to create an asset allocation profile by first asking about your financial goals and tolerance for risk and then spitting out a sample fund portfolio that matches that profile. All the sites also post their funds' investing philosophies, bios of the fund managers and historical charts of their various funds' performance.

That said, lots of relevant data is missing. None of the sites surveyed ranks its funds' performance against the competition. For example, you cannot measure your money manager's Canadian equity fund against a similar fund from a rival. This may be a missed marketing opportunity, as some investors seek out poor performers as potential future outperformers. Conversely, if the funds you hold are top dogs in their class, that would be good to know.

Various loads and fees are also poorly disclosed. Some sites don't disclose MERs at all (CIBC) while others (AIM Trimark) bury them in digital prospectus files. As these fees can shave up to 3% annually off a fund's value, they're details you want to know. And if the funds can be purchased with different load types, none of the sites clearly explains the reasons to choose one over another.

You'll also have trouble finding out whether investors are rushing for the doors or piling into your favourite fund. Churn rates can show you if the assets are dwindling or growing in a fund. Usually, if investors are cashing in, that limits how nimble the manager can be. But you'll have to go to the Web site of Investment Funds Institute of Canada (www.ific.ca) to find that out.

Some sites are doing some things right. Investors Group, for example, allows clients to graph their IG funds against indexes, and also shows how the funds rank in performance within their categories. It also tells you if its funds are leading, average or laggards within their fund groups.

Where the company trails its biggest competitors is in showing what stocks, cash or commercial paper its funds hold. Its many “portfolio” funds only list the component funds they hold. As for its other products, you can see that a fund holds WorldCom but not how much and at what cost it bought the stock.

In some cases, fund companies reserve their best tools for their advisors. AIM, for one, has built an excellent advisor site where numerous comparisons can be perused. There is a sophisticated asset allocation tool and a great fund screener that filters through the whole universe of available funds by various criteria (performance, MER, assets and more). Alas, you have to be, or be with, a financial advisor to access it.

“We built this for consumers to sit down with their advisors and go through the site together,” says Brent C. St. Pierre, assistant vice- president for e-business at AIM Trimark Investments.

Mackenzie, RBC and CIBC have built similar support sites for their advisor networks and, like AIM's, these are unavailable to the public.

For those who want to study these issues for themselves, or arm with information for their next advisor meeting, the best bets are still third-party sites such as Fundata.net, Moneysense.ca and GlobeFund.ca. All three offer excellent fund screening tools, allow you to graph funds against each other or against indexes, and produce fund "report cards" that show holdings, fees and how a fund stacks up against its peers.

If you want to stay informed within the comfort of your home, use mutual fund company sites with caution. You'll get good overviews, but what you don't know can hurt you.

FUNDS AND GAMES: An exploration of the fund data and tools available on the Web sites of Canada's five biggest (by assets under management) mutual fund companies shows varying commitments to investor transparence. All reveal the performance and distribution history of their funds, total assets under management, and sector and geographic breakdowns. Here is how they stack up on disclosing more contentious information:

Top 5 website comparison*

COMPANY	MER?	CHURN	HOLDINGS	COMPARATIVE
RBC Asset Management	YES	NO	TOP 10	Only within their funds based on performance time frames
Investors Group	YES	NO	TOP 10 but not %ages	Only within IG funds and/or against an index. Also shows performance against similar outside funds expressed as a group performance
AIM Trimark	YES but buried and hard to find	NO	TOP 10	Only within their funds based on performance time frames
CIBC Asset Management	NO	NO	TOP 5	None
Mackenzie Financial	YES	NO	TOP 10	None

*Based on IFIC below

• CHURN = Recent redemptions and sales numbers (how much has been cashed out – how much came in)
• HOLDINGS = Top securities held by fund at any given time
• COMPARATIVE = compare against any of: other company funds, index, some benchmark, same company funds
• NOTE: All websites here show: performance and distribution history of their funds; Total assets under management; and, Sector and geographic breakdowns

Top mutual fund companies in Canada*

 

 

 

 

net notables

Appearing in Applied Arts Magazine 1996-2005, click the links below:

2004:
Mar, May, Aug, Nov

2003:
Feb, May, July, Nov

2002:
Jan, Mar, Sep, Nov

2001:
Mar, May, Sep, Nov

2000:
May, July, Sep, Dec

1999:
Jan, Mar, Sep, Nov, Dec

1998:
Jan, May, Sep, Nov

1997:
Jan, Mar, May, July, Sep, Oct

1996:
Mar, May, July, Sep,
Nov

 

random quote

“I love deadlines; I like the whooshing sound they make as they fly by” — Douglas Adams