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By Paul Delean
Montreal Gazette
Saturday, June 12, 2004
Also published in the following:
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Edmonton Journal
Saturday, June 12, 2004 |
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Regina Leader-Post
Saturday, June 12, 2004 |
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Victoria Times Colonist
Tuesday, June 15, 2004 |
MONTREAL -- Which of the following mutual funds has done better? Fund A, which rose 80 per cent the first year and dropped 50 per cent the next, or Fund B, which grew 5 per cent each year.
Adrian Mastracci, investment counsel at Vancouver’s
‘fee-only’ KCM Wealth Management, says, "Nobody likes a plodder, but in investing, being consistent is more important than being exciting.”
"You'd be surprised how many people think it's A," said financial adviser Adrian Mastracci of KCM Wealth Management, who often uses the example when addressing groups. "Nobody likes a plodder, but in investing, being consistent is more important than being exciting."
That was one of the failings of mutual-fund guidebooks, which proliferated in the mid-'90s but now are virtually extinct in Canada.
Too often, their recommendations were the high flyers of the last couple of years, funds more likely to underperform and revert to the mean than stay at the top of the heap.
Investors who bought funds based on guidebook rankings frequently weren't thrilled with the results, or by the fact funds championed one year sometimes exited the list a year later.
It didn't help, either, that most mutual funds went the way of stock markets from 2000 to 2002, leaving owners of even the best funds significantly out of pocket and a lot more reticent about additional fund investments.
Many investors also came to the conclusion that effective mutual-fund investing essentially consisted of buying index funds or exchange-traded funds. Historically, most actively managed funds simply haven't delivered returns comparable with the indices.
Bestselling author Gordon Pape, who announced this week his annual mutual-fund and RRSP guidebooks would be following names like Smart Funds and Top Funds into extinction, said the downward trend in sales began in the late 1990s, even before the stock-market slump.
"I attributed it initially to the fact so many competitors had appeared on the scene," said Pape, who published his first RRSP guide in 1989 and mutual-fund guide in 1990.
"In retrospect, it clearly had a lot more to do with the Internet. A lot more information became available at the touch of a button. People had a range of free information that was right up to the minute. As the Internet got people accustomed to more rapid communication, there was a perception this was old news."
Pape said the mainstrean media also have significantly improved their coverage of personal finance, reducing demand for this kind of self-help book.
"At one time, the mainstream media contained little information related to retail investors," he said. "Only in the mid-'90s did newspapers begin to build the quality and quantity of information provided to retail investors."
With annual sales in excess of 5,000 copies, Pape's books still qualify as bestsellers in Canada, but in their heyday, they sold as much as 80,000. Because the number of mutual funds in Canada kept growing, so did the guidebook, with the result that the retail price went from $8 to more than $30. As the price increased, sales fell.
"We were the last one standing," Pape said, "but it is no longer economically viable to publish the books."
Peter Brewster, former editor of "The Canadian Mutual Fund Advisor" newsletter, said he didn't always agree with Pape's opinions, but: "I think his books were the best compendium of information. They provided a nice capsule of what the funds were all about."
Brewster, who retired last year, said publications providing information on mutual funds are in the difficult position of analysing a product marketed as low maintenance, to be bought and left alone to grow.
People aren't supposed to be second guessing their choices whenever a new newsletter or updated guidebook comes out.
"I always wrestled with how to write in a way that makes people involved in something they're not supposed to be involved with," he said.
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