Mackenzie burned by Bernie Madoff (made off with your money)

[macker]

Originally Posted by Slava

OK, fair enough. I can't get the graphs I generated to paste here for some reason. I would be more than happy to email this stuff to you if you want to PM me an address. (Don't worry I'm not going to spam you to death!!)

CI Harbour, Dynamic Power Balanced, Ethical Dividend,v Fidelity Canadian Asset Allocation are all ahead of the TSX Return over the past 3-5 years. The numbers actually look better for the mutual funds than they do for the index as a whole over the last three years as opposed to the last five years.

Risk-wise, these funds are lower risk than the index as a whole, and yet the returns are higher. I really wish I could cut and paste the charts....I wasted enough time putting them together for a stupid internet discussion!

http://www.morningstar.ca/globalhome...sp?fundid=3052

http://www.morningstar.ca/globalhome...sp?fundid=2811

http://www.morningstar.ca/globalhome...sp?fundid=3104

http://www.morningstar.ca/globalhome...p?fundid=79168

As referenced above the funds you referenced, although relatively good, have a hard time distancing themselves from the overall index over any period of time. What does that say for the 1* 2* 3* rated funds out there. The Dynamic fund for example has an MER of 2.99% I think we will see the MER's come down in the years to come as this has been the case elsewhere.

[Slava]

^ Now you're switching the rules of the game though. You said that funds underperform, where I basically picked a few funds off the top of my head and they are outperforming at this very time! Not only are they outperforming, but they are taking less risk in doing so.

I do think that MER's will begin to come down, but if the funds are already outperforming than that just makes it more enticing to buy.

I also think its funny that you think that Coleman has a good grasp of thinks and seems to consistently beat the markets, but still think that indexing makes more sense!

[Slava]

Originally Posted by Shazam

Ouch.

An ETF in the index at, say 50% of investments, with the other half in whatever bond fund you can find with the lowest MER, will do quite well versus the index itself, and has significantly less risk than the stock market.

Rebalance every year.

Not to offend Slava, but he's only worth his MER if he consistently outperforms the market. Just because he called this one event doesn't mean much. I called the dotcom crash, but that hardly means anything either.

There are very, very few funds that have outperformed the market over the past twenty years.

This doesn't offend me in the slightest, I love talking about this stuff! (Its a curse that Sunday morning I am sitting here reviewing work related things!).

I'm only worth the MER if you find value in the number of things that I listed in my other post (the financial advice, the tax savings, the structuring of their affairs, etc). Shockingly, I also do want my business to make a profit! Predicting the markets is actually a fools game; no one in their right mind would hang their hat on that and say "I can tell you what is going to happen, so you should pay me for that."

That being said, you think that saving someone 20-40% of their life savings "hardly means anything"? Clearly you don't work with people who were hoping to retire next year or next month...even psychologically that is a big deal for people.

In reality the part of my job that I have to work the hardest is to make sure that people don't panic at the wrong time (i.e. over the past 3-4 months) and sell everything at a loss. That is where peoples portfolios are devastated!

As far as the "portfolio" you have there, I'm not convinced that it beats the market. Are you rebalancing because you started the portfolio last March 15th and that is today, so it must be a good time to do this, or do you actually have some criteria in place for that? Geographically where are you investing and why? What sectors are you focusing on? If the deal is that you just buy the straight index for half of the money (lets say that averages 10% per year) and the rest into a bond fund (lets say that is 5% per year) you come out with an average of 7.5% per year over the long-term....not exactly something to write home about. You could invest in something like a balanced, medium risk mutual fund and get that return.

Lastly, I've already addressed the idea that "very" few funds beat the index. I think that is a huge myth. I have done the reading and I understand the point that these guys are making; I just think that the facts are a bit skewed. There are many more funds in the US, and that dilutes the percentages for sure. Some of these funds are places that most people would never invest, but they get counted just the same. It makes the numbers look good, and provides ammunition for their arguments. In reality if you have an advisor who is independent and does proper due diligence they will point you in the right direction to use the right funds and managers. No one can guarantee that you will beat the market (and truthfully if you are planning properly you shouldn't rely on that to begin with), but if you invest in the index you are guaranteed not to beat the market.

[macker]

Originally Posted by Slava

^ Now you're switching the rules of the game though. You said that funds underperform, where I basically picked a few funds off the top of my head and they are outperforming at this very time! Not only are they outperforming, but they are taking less risk in doing so.

I do think that MER's will begin to come down, but if the funds are already outperforming than that just makes it more enticing to buy.

I also think its funny that you think that Coleman has a good grasp of thinks and seems to consistently beat the markets, but still think that indexing makes more sense!

When you factor in the MER are these funds really outperforming the index? As for Gerald Coleman he does have a good grasp of things as does Ross Healy, Peter Gibson, Kim Shannon, David Driscol among other fund managers. It doesn't mean that I buy the funds that they operate. Listen to everyone but follow no one. Why would I pay them 3% for something that I can do myself I actually out perform the funds that they opreate and have done so since 2005. I am not a complete indexer either but I do use ETF's at times to take advantage of broad themes. For example one could use an ETF to short the 30 year US T-bill at this time and do quite well going forward. I haven't done this yet but I am looking into it. Seems to be too many people doing this currently so I am waiting. Bottom line : with ETF's or index funds you know exactly what you are getting and you surely aren't going to be buying into a Ponzi Scheme. Cut the manager and the fee's out of the equation thats all. Indexing does make more sense! With Horizons Beta-Pro comming out with ACTIVELY MANAGED ETF's this past week Indexing and ETF's have never made more sense actually! http://www.hbpetfs.com/ Dump the Mackenzie Funds and load up on http://www.hapetfs.com/pdfs/20090106_hap.pdf and you will see outperformance going forward without the RISK of having a scam artist like Bernie Madoff taking your money from you. That is risk!

[macker]

Originally Posted by Slava

This doesn't offend me in the slightest, I love talking about this stuff! (Its a curse that Sunday morning I am sitting here reviewing work related things!).

I'm only worth the MER if you find value in the number of things that I listed in my other post (the financial advice, the tax savings, the structuring of their affairs, etc). Shockingly, I also do want my business to make a profit! Predicting the markets is actually a fools game; no one in their right mind would hang their hat on that and say "I can tell you what is going to happen, so you should pay me for that."

That being said, you think that saving someone 20-40% of their life savings "hardly means anything"? Clearly you don't work with people who were hoping to retire next year or next month...even psychologically that is a big deal for people.

In reality the part of my job that I have to work the hardest is to make sure that people don't panic at the wrong time (i.e. over the past 3-4 months) and sell everything at a loss. That is where peoples portfolios are devastated!

As far as the "portfolio" you have there, I'm not convinced that it beats the market. Are you rebalancing because you started the portfolio last March 15th and that is today, so it must be a good time to do this, or do you actually have some criteria in place for that? Geographically where are you investing and why? What sectors are you focusing on? If the deal is that you just buy the straight index for half of the money (lets say that averages 10% per year) and the rest into a bond fund (lets say that is 5% per year) you come out with an average of 7.5% per year over the long-term....not exactly something to write home about. You could invest in something like a balanced, medium risk mutual fund and get that return.

Lastly, I've already addressed the idea that "very" few funds beat the index. I think that is a huge myth. I have done the reading and I understand the point that these guys are making; I just think that the facts are a bit skewed. There are many more funds in the US, and that dilutes the percentages for sure. Some of these funds are places that most people would never invest, but they get counted just the same. It makes the numbers look good, and provides ammunition for their arguments. In reality if you have an advisor who is independent and does proper due diligence they will point you in the right direction to use the right funds and managers. No one can guarantee that you will beat the market (and truthfully if you are planning properly you shouldn't rely on that to begin with), but if you invest in the index you are guaranteed not to beat the market.

I stand by the links that I have posted previously in this thread. Canada offers even worse value for mutual funds than the US does. Please go back and click on the links. The facts are the facts. If the majority of the funds out there can't beat the index there is no value propostion. E-trade offers many tools that help you to rebalance and when you see a position that needs to be trimmed back you trim it back. I am not greedy and I use stop losses and I earn my own MER! I think that any sports fan could do what I do quite easily actually. Buy Calgary Sell Edmonton Who says buy and hold is dead I wouldn't even use a stop loss on this one and wouldn't have a problem shorting the Oilers!

[MoneyGuy]

Originally Posted by macker

The hockey analogy doesn't cut it here. We are talking about the biggest financial scam in history ($50 B) and a supposed leading mutual fund company in Canada is caught putting 20% of a funds holdings with the scam artist. If you deal with these companies I guess I can understand why you are soo quick to defend them. Mutual funds are an asset class in decline, just look at the redemption numbers for October 2008 so I am not the only one that thinks that mutual funds offer a poor return for your money. Do you realize that in Canada we pay the highest MER's in the world and that over 70% of the mutual funds can't even beat the Index. Things need to change if the mutual fund industry in Canada is to survive as a legitimate asset class. If scams like this don't cause people to investigate the system then they are bound to repeat themselves. I think that what Mackenzie was caught doing here is far worse than anything Steve Smith ever did If you don't have time to manage your own portfolio why not buy index funds and pay MER's less than 1% instead of investing in mutual funds that charge 3% MER's you will outperform 70% of the mutal funds out there anyways. Hedge funds are even worse than mutual funds as you pay your 3% MER and then there is a management fee that can sometimes be up to 20% of the fund performance on top of that. Sorry, I can do better than this and you know in your heart of hearts that there are better options out there for anyone who wants to take the time to educate themselves on what is available for their money. You might say "yeah that's smart" but I can guarantee that I am outperforming all of the mtutual funds that you are recommending in my own portfolio that I manage myself and I will never get screwed over by any Ponzi Scheme as I am doing my own DD and do not rely on the Mackenzies of the world to do this for me As a side note I used to invest with mutual funds and they caused me to educate myself years back when I had over $8,000 in a Global Technology fund with AIM Trimark that soon became $1,500. That's all it took for me And you are right, I didn't know anything about diversifying my portfolio at the time but neither did my supposed investment advisor who was no Phil Housely either. The attached link will show you that avoiding Manitoba defenseman is not a bad idea http://www.hockey-reference.com/friv...ince=MB&state=

I was merely pointing out, or trying to, that to dismiss funds and to call for their demise on the basis of the errors of one fund manager (or management team) is wrong. I don't absolve Mackenzie from blame. Of course, they're at fault here, and to argue otherwise would be silly.

Mutual funds will always exist. Redemptions happen at times like this when investments are doing poorly. People flee to other things; it's human nature. For the right person in the right sitution, funds are the perfect solution. There are lots of investors who should own funds because they have neither the time, the interest nor the expertise to do it themselves.

There are so many things in your post that I'd love to debate with you if I had the time. One of my favourite topics is do-it-yourself investing. It's not as easy as just going out and picking some indexes. It's my belief (and this is borne out by numerous studies) that surprisingly little of success is due to investment performance, but moreso investor performance. I'm not dismissing buying indices, just saying that while in the right hands they're a great tool, in the wrong hands they can be damaging. When a managed fund drops 30% and the index drops 60%, how many DYI investors will do the right thing and stay the course?

Lots of people bought into technology in the late '90s because everyone was supposedly getting rich, only to see the sector crash and the investor flees for some other flavour of the month. That flavour of the month might be selected because of recent good returns, which is not the reason to select an investment. There are lots of crap advisors out there, but the good ones will get clients to do the right thing when the wrong thing is what comes naturally. I bring discipline to my clients' financial affairs, and that alone is a huge benefit.

Frankly, the average person doesn't have a clue about things like cash-flow planning, tax planning, estate planning and managing his/her own emotions. If you buy indices and do well over the long term, good for you. Most people can't do that. I'm a CFP and offer services as part of the package that bring lots of value. Getting people to do the right thing when the wrong thing is what everyone else is doing and the wrong thing is easy.

I honestly feel that investments (including funds) do well. It's people who do poorly because they screw themselves up with stupid decisions.

You say that most funds fail to outperform the indexes. True, but there are many funds that are crap. Take them out of the equation. Most people who make your argument fail to account for the costs of index investing. When you include those costs and the benefits that a good advisor brings, it's a very different picture. There are great fund managers who are worth their fees. I'd bet that I can put together a diversified portfolio of a number of funds that I'd bet lots of money that the whole portfolio will outperform a weighted index over the next decade. Buy those funds and create a diversified portfolio and forget about them for a decade and you'd do very well. If everyone did with their money what I do with mine, they'd do very well.

High MERs? Much of that has to do with the political environment in Canada. Take away all these securities commissions and SROs and having to do everything in both official languages and MERs would come down a lot. MERs in the States are way lower, but they're calculated differently. Those differences and the very different regulatory environment explain most of the cost difference.

I'll end by going back to something I said before. I'll take a shot at my industry and restate the poinnt of view that there are lots of lousy advisors in this business, giving us all a bad name. If I were king of the world, I'd make so many changes in this business. I have lots of ideas that I can't get into.

BTW, I have clients who have told me that they're way better off because they deal with me. I've had clients retire and give me a gift because they feel they're better off because of my influence in their financial affairs. They're who wouldn't dream of trying to do it themselves. They know they're not capable and depend on my expertise.

[Slava]

^ So many great points in that post!

[macker]

Originally Posted by Slava

^ So many great points in that post!

There are actually many points that I do agree with. I won't get into them but I will say that my basic premise was that people are going to start to take a closer look at mutual funds and hedge funds (and possibly avoid them?) when trusted institutions such as Mackenzie Financial are caught charging a 3.28% MER plus a 2.5% Management fee to invest with the one and only Bernie Madoff. Here is what the fund performance was like even before Bernie rolled out of the closet. http://www.morningstar.ca/globalhome/quicktakes/fund_overview.asp?fundid=7650

A 5.78% fee for this? What other system could this kind of scam occur in? I have yet to hear about a mechanic that has pulled off 50 Billion. It is not a personal attack on your business but it is a lack of trust for a system that could allow this kind of scam to hurt pensioners, accredited investors and the like. This one is worth taking a closer look at! That's all.

[Slava]

Originally Posted by macker

There are actually many points that I do agree with. I won't get into them but I will say that my basic premise was that people are going to start to take a closer look at mutual funds and hedge funds (and possibly avoid them?) when trusted institutions such as Mackenzie Financial are caught charging a 3.28% MER plus a 2.5% Management fee to invest with the one and only Bernie Madoff. Here is what the fund performance was like even before Bernie rolled out of the closet. http://www.morningstar.ca/globalhome/quicktakes/fund_overview.asp?fundid=7650

A 5.78% fee for this? What other system could this kind of scam occur in? I have yet to hear about a mechanic that has pulled off 50 Billion. It is not a personal attack on your business but it is a lack of trust for a system that could allow this kind of scam to hurt pensioners, accredited investors and the like. This one is worth taking a closer look at! That's all.

Right, but coming full circle the problem is that you can't pile on an entire industry because one guy does something unethical. We all know that there are mechanics who replace parts that they shouldn't, or take advantage of the housewife who doesn't know a sparkplug from an alternator...but that is no reason to stop using all mechanics.

[macker]

Originally Posted by Slava

Right, but coming full circle the problem is that you can't pile on an entire industry because one guy does something unethical. We all know that there are mechanics who replace parts that they shouldn't, or take advantage of the housewife who doesn't know a sparkplug from an alternator...but that is no reason to stop using all mechanics.

I don't think I piled on the entire industry but rather pointed out a few different mechanics that actually let you watch them do the work.

[macker]

http://www.reuters.com/article/newsO...EN432820090211

I don't think anybody will notice my 15 Million withdrawal....Sing it Biggie....