Managed Money Reporter Newsletter Editors: Carl Spiess & Allan McGlade

Issue 162 August 2000

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Featured Articles

• Small Funds vs. Large Funds
• Managing Your Money
• Fund News

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Do smaller funds outperform larger funds?

The answer is there is no statistical evidence to support such a claim. In fact the opposite could be suggested based on the statistics. I looked at the 20 largest and 20 smallest Canadian equity, Canadian Large Cap and Canadian Small to Mid Cap funds over one and three year periods. What I found was that the larger funds on average out performed the smaller funds in each fund category over each time period except the 3-year Large Cap returns where the smaller funds out performed their larger counterparts.

However, I do not think these statistics are terribly valid. When dealing with open-ended funds, good performance begets net contributions while poor performance generates redemptions. Thus a strong performer's assets will grow as a result of strong returns and net purchases while the poorer performing funds will suffer the double blow of lower returns and net redemptions. Thus it makes sense that if looking historically, the larger funds are the ones with the best track records. But the size of the fund is not what made it successful or unsuccessful, it was the performance.

The theory is that small equals nimble and the ability to get in and out quickly should improve returns. That carries with it a huge assumption that the manager's timing is always right. Being nimble is not nearly as important as being right. Besides, most managers accumulate positions over time and divest themselves of positions in similar fashion. Even very large funds can accumulate large positions if done piecemeal, and can also decrease or close a position using the same strategy. Few managers if any would lay claim to the ability to buy a full position at the bottom and sell it all at the top for all their investments.

My conclusion is that the markets can provide sufficient liquidity for even the largest of funds to outperform by picking the right stocks at approximately the right time. Asset size would be well down my list of important considerations.

Congratulations to Ted Ballantyne, the winner of our Quicken 2000 draw!!

The draw involved submitting a request to receive the Mutual Fund Reporter via e-mail instead of regular mail, which will help cut down on paper and help our environment. If you would like to change your present subscription, sign up through our website at: www.mutualfundreporter.com/subscribe

Permission to reprint this article by Robert Bell from the BellCharts software has been kindly provided by Morningstar Canada.

FYI

ScotiaMcLeod generally doesn't 
recommend funds with an asset size 
smaller than $25 million due to the fact that larger funds and fund companies generally attract and are able to retain the best
portfolio managers. 

Our top 10 / bottom 10 listings have always only included funds over $25 million, and this quarter the investment options newsletter also only lists funds over $25 million, making it easier to find the most popular funds.

Managing Your Money...

Time and again, people ask, "What can I do to manage my finances more effectively?" While the answer depends largely on the individual situation, people with the most success managing their finances generally follow the advice noted below

1. Have a Plan

If you were to decide that you were going to take a driving holiday, chances are that you would pull out a map to determine the best or most scenic route to get to your final destination. The point is that not many people would get in their car and start driving without a plan on how to get where they are going.

Your finances are no different and yet a staggering number of people have no real plan in place to help them achieve their goals and objectives. Individuals who are most successful with managing their finances have developed a short-and long-term plan as a road map that will assist them in getting to where they want to be financially.

2. Establish Goals

The reason many people do not have a plan in the first place is that they have not determined what their goals and objectives are. There are the obvious goals such as retirement date and estate goals, but most people have many other goals over the course of their life-both financial and non-financial. Many individuals, while they have some idea of their goals, have not taken the time to articulate their objectives and then subsequently develop a plan for achieving them.

3. Time ... as a Friend

Time is probably your best friend when it comes to financial planning. It is very difficult to replace time without increasing your risk. The earlier you get started towards achieving your plan, the sooner you will achieve it.

Fund News

AIM Funds have had some fund name changes: AIM American Premier is now AIM American Blue Chip Growth. 100% RSP-eligible fund has changed as well. AIM American Growth Class has been renamed AIM American Mid Cap Growth Class. They have also introduced three new global earnings momentum funds. AIM Dent Demographic Trends Class AIM International Growth Class AIM Global Aggressive Growth Class 100% RRSP-eligible versions of these new funds are also available. There have also been portfolio manager changes within the following funds. AIM Canada Growth Class AIM Global Natural Resources Class AIM Canada Income Class AIM Global Theme Class C.I. Mutual Funds has had two portfolio manager changes: Scott Morrison will become lead manager of C.I. Global Technology Sector and its 100% RSP-eligible equivalent. Derek Webb is now the portfolio manager of C.I. American Fund and its 100% RSP-eligible equivalent as well as C.I. American Sector Shares. Dynamic Funds has had a portfolio manager change: Todd Beallor is the new portfolio manager for Dynamic Small Cap Fund. Spectrum United has changed their name to Spectrum Investments.

4. Time ... as an Enemy

Time is also an enemy for most people. Not only from the perspective that they procrastinate in terms of executing their plan, but also in terms of how much or how little time they spend managing their finances or their plan. 

5. "Chasing Mentality"

Too many people have a "chasing" mentality-that is chasing the latest, "hot" investment. The key to determining if an 
idea or product is appropriate for you is determining whether or not it contributes to the achievement of your financial plan -
which means you need a plan to 
even know if you have this problem. 

6. Can I Do it Myself?

Most people need some kind of professional advice to manage their finances. Whether it is tax, investment, legal or other advice, most people cannot do everything themselves. Too many people try to do everything because they think they should be able to or they don't want to pay the fees that professionals may charge. It is wise to know your limitations and when to get help. 

7. Remain Flexible

Remaining flexible in your planning is very important. Many people make decisions 
that they cannot get out of or if they can it is very expensive to change their minds. Setting up your plan to achieve your goals while maintaining flexibility is very important as both your plan and your goals and objectives will change over time.