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Mutual funds Survivorship

Mutual funds Survivorship

October 18, 2018

The investment of choice for most Canadians is mutual funds. If you own a mutual fund this column might be of particular interest.

 There are endless numbers of mutual funds to choose from and most investors are aware of that. What most investors are not aware of is how often mutual funds are closed down.

 When a mutual fund is closed those assets are transferred to another mutual fund. Your investment remains but it does so in a different mutual fund.

 We know from research done at the University of Chicago that mutual funds with a poor performance record are the funds most likely to disappear. This topic has been discussed in past columns.

 Just think if we had that luxury when we were in school. Perform poorly on a few subjects and then just eliminate those subjects from your transcript.

 According to the SPIVA Canada Scorecard from Year-End-2017, mutual funds disappear at a fairly high rate. Standard & Poor’s report titled ‘Survivorship’ provides the details.

 After five years slightly over half of Canadian funds disappeared. Funds operating in the United States had slightly over a quarter of those funds disappear after five years.

Most people hear the importance of investing for the long-term. That becomes more difficult when the underlying funds you invest disappear at an alarming rate.

 That makes it difficult to monitor the long-term performance success of fund managers and fund companies that offer a large selection of funds.

 Fund reporting might convey attractive performance figures. The obvious conclusion is the fund manager has expertise therefore you might consider investing your money there.

Historic performance results are meaningless unless you are able to view the results of all funds managed during that time period.

An investor deserves to see the performance results of all funds including those with poor performance that have been pulled from the market.



Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI).  ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).  The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments