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Good balanced funds (one-size-fits-all)

61K views 140 replies 34 participants last post by  james4beach 
#1 ·
I know that many of us have ETF or individual stock portfolios, but friends and family frequently ask me about simpler fund options. This might be the kind of thing suitable for a retiree or someone wanting to build savings without spending too much time managing the portfolio themselves. Maybe we can list some good, generic balanced funds we're aware of. Some criteria:

- single fund
- around 50/50 or 60/40 asset allocation
- low MER
- diversified with Canada plus foreign exposure
- diversified sector exposure (not very heavy in a specific sector)
- ideally, a long track record

Different brokerages will give access to different funds, and different minimum purchase amounts apply, so I think it's useful to list several options.
 
#2 ·
Mawer Balanced Fund (MAW104)
MER 0.92%. Allocation is 17% Canada, 41% foreign. The 10 year return is 8.06% cagr, far above average for global balanced funds. Available through TDDI.

Tangerine Balanced Portfolio (INI120)
MER 1.07%. Allocation is 18% Canada, 42% foreign. The 10 year return is 5.24% cagr.

BMO Monthly Income, Series D (GGF31148)
MER 1.02%. Allocation is 32% Canada, 26% foreign. This is a newer low cost series so you can look at performance of the parent fund and add +0.55% cagr return due to MER drop. That puts 10 year return at 5.63% cagr and 15 year return at 6.52% cagr. Available through TDDI.

Vanguard VBAL
MER 0.25% (estimated). Allocation is 18% Canada, 42% foreign. This is a new fund and doesn't yet have a track record, but presumably it would perform similarly to something like Tangerine but with a lower cost, and theoretically, higher performance. Available through all discount brokerages since it's an ETF.
 
#46 · (Edited)
BMO Monthly Income, Series D (GGF31148)
MER 1.02%. Allocation is 32% Canada, 26% foreign. This is a newer low cost series so you can look at performance of the parent fund and add +0.55% cagr return due to MER drop. That puts 10 year return at 5.63% cagr and 15 year return at 6.52% cagr. Available through TDDI.
I recently helped a family member calculate some performance stats on their own "balanced" ETF portfolio. It was an interesting experience that reminded me of the added value of mutual funds and professional management. Their start date was late 2007, immediately before the market crash. Worst possible entry.

This person held various ETFs, vaguely 60/40. However (as many of us have done) this person avoided regular bond funds out of fear of rising interest rates, instead using short term bonds. This resulted in a big performance loss -- attempting to time the market. Additionally they did not rebalance between stocks/bonds over time.

Their performance since starting in late 2007 was 4.7% CAGR which is pretty good, actually the same as pure Canadian stocks. Given their Canadian emphasis this seems about right.

Then out of curiosity I calculated the return of BMO Monthly Income for the same time period, as it's also heavy in Canada. It's 5.1% for the high MER version and 5.6% CAGR for the low fee D series version.

So this mutual fund, even with its 1% MER, outperformed the low fee ETF portfolio by a full 1% even after fees. Interesting! I can spot the reasons why:

+ good bond allocation, not trying to time the bond market
+ no cash drag
+ better international diversification
+ regular rebalancing

And I think that's the value of professional management using mutual funds. To me this is a clear example of how a 1% MER is worth it, when the fund is well managed and is able to successfully stick to the basics. This person wasn't a novice investor, and I was helping them manage the portfolio as well. And yet both of us made mistakes that hurt performance... especially on cash drag and trying to time the bond market.

I used to point more people to ETF investing and couch potato approaches. These days I find that I'm often recommending good quality portfolio mutual funds, since the fees have come down so much.
 
#7 · (Edited)
True, I did mention this one before:

RBC Monthly Income, Series D (RBF1006). MER is just 0.88%. The 15 year performance has been quite good at 6.7% annualized. The reason I did not list this one is that it's almost exclusively Canadian equities (37%) with just a tiny bit of US (8%) but no international. This is basically a pure Canadian fund, so it may not be appropriate as a single one-size-fits-all holding. It's still a good Canadian balanced fund though and is available through RBCDI and TDDI.

Compared to that, I prefer the BMO Monthly Income as it has better geographic diversification: 32% Canada, 15% US, 11% international. Although it's also Canada-focused, it has more foreign diversification. Its sector diversification is also better than the RBC one.
 
#18 · (Edited)
Thanks for the pointer to BG.

Beutel Goodman Balanced (BTG772) with MER 1.20% looks really good. It's Canada-heavy with a similar allocation to BMO's ... 33% Canada, 35% international, but has done much better than the BMO one despite the higher MER: the 15 year return is 7.22% cagr.

I noticed that its 2008 loss was only -11% versus -17% to -20% for the balanced fund category. I suspect that the management did something (likely de-risking) to soften the loss. Together with the consistent outperformance I don't think this can be accidental... the management seems to be quite sharp, and is adding value.

Unless I'm missing something, this fund looks a real champ.

It's available at TDDI but beware that there is a front-end load through some brokerages. I believe there is no load at TDDI but I've never bought one of the BGs, so I'm not sure. Definitely look into this before considering buying.
 
#8 ·
Yes, I think so. As long as it's a well established fund with a low fee and good diversification, I think you can more or less forget about it. If you're adding to savings and building up capital, just remember to automatically reinvest distributions. Also remember that since these are stock-based investments, they should be held for several decades. It wouldn't be surprising to see a 10 year stretch with poor returns... this has certainly happened before.

If the funds are to be used to invest incremental income on an on-going basis, fees need to be considered. ETFs incur a trading fee each time they are purchased at most brokerages. Mutual funds usually have no trading fee, but have higher MER. Need to determine what suits your particular situation.
Good point, and each person's situation will be different. For example, my friend was looking for something to hold within a TDDI RESP and regularly add small contributions. Though MAW104 is a great fund, it has a 5K minimum investment so it's not suitable for her. Tangerine is not available in TDDI. The VBAL trade fee makes it unsuitable for small incremental purchases. So in her case, BMO Monthly Income is the only viable option... $500 initial, with $50 additional purchases.
 
#6 ·
If the funds are to be used to invest incremental income on an on-going basis, fees need to be considered. ETFs incur a trading fee each time they are purchased at most brokerages. Mutual funds usually have no trading fee, but have higher MER. Need to determine what suits your particular situation.
 
#22 ·
Another BMO one that's even better diversified globally, and very attractive I think.

BMO Balanced ETF Portfolio D Series (GGF31703). MER is 0.90%. This one is very interesting, it just holds ETFs. It's the same concept as Vanguard VBAL except this one already has 3 years track record and $2 billion in assets, and it's proving that it can outperform the index. 18% Canada, 22% US, 19% international. Has $500 minimum and $50 additional.

I think this is very interesting because it's the same concept as VBAL, but with a track record, and has low minimums appropriate for smaller purchases. From the balanced mutual funds I've seen, this would probably be my top pick so far after MAW104.
 
#24 ·
BMO Balanced ETF Portfolio D Series (GGF31703). MER is 0.90%. This one is very interesting, it just holds ETFs.
Adding a comment on this one. This ETF based portfolio doesn't have much of a track record yet, so it might not be as attractive as I first thought. The prospectus does not lock in fixed allocations but says they might change over time strategically, making this an actively managed fund, so I think it remains to be seen how well they will manage it longer term.

Overall though, I'm happy to see that there are actually some good generic mutual funds out there at 1% of even lower MER. Several fund companies too, available through various means (including discount brokerages), many with 15+ year track records. Depending on your needs for minimum/incremental purchases and preference for Canada-heavy or more international, lots of options here.
 
#26 ·
My mutual fund is with Steadyhand. I'm in their Founders Fund. I had hoped to switch to Mawer104 once I broke the 50 grand plateau, but...

"Mawer Investment Counselling requires a minimum of $250,000 per account.
Mawer Mutual Funds can be purchased via an investment advisor or through a discount brokerage for a minimum of $5,000 per fund, per account.
Please note that we are no longer accepting new clients into Mawer Direct Investing Ltd."

I don't have an advisor or brokerage account and don't want to incur fees in order to fund a Mawer mutual fund. Too bad.

I went with Steadyhand to begin with, because their minimum to deal directly with them is $10,000. Since inception, I've averaged a 5.7% return after fees. Not really that great....
 
#28 ·
With 50k you shouldn't pay fees to have MAW104 in a brokerage account. Some brokerages charge maintenance fees below a certain balance threshold but I think that threshold is like 25k for most brokers. And most brokers don't charge commission to buy/sell mutual funds. I know this is true for TD as they are my broker, not sure for others - but you should be able to easily check and find out.
 
#27 ·
I would add two other balanced funds to the list:

1. NBI Jarislowsky Fraser Select Balanced. E series is the equivalent of most companies D series and has an MER of 0.89%. As the name suggests it is managed by Jarislowsky Fraser. My only concern is if anything will happen to this fund now that BNS owns Jarislowsky Fraser.

2. Leith Wheeler Balanced. Leith Wheeler runs a similar business to Mawer and Steadyhand, but focus on the value investment style. Value investing has underperformed for a significant amount of time recently which is reflected somewhat in this fund, but eventually value will come back into favour.

I cant help but think that Mawer is being faced with a lot of clients who are performance chasing. It can be challenging when they have inevitable periods of underperformance if a lot of the weak hands sell out.

As for Steadyhand I have invested the majority of my wealth with them for over 5 years and have seen returns above the index as well as had great support and advice. That being said the Founders Fund has more room for changes to the asset allocation than most balanced funds and that may not be for everyone. I am not primarily invested in the Founders Fund.

My only advice would be to not chase short-term performance. You need to look at the full market cycle and remember that no style of investing outperforms at all times.
 
#39 ·
Thought I'd post some YTD numbers (December 21) for the mutual funds mentioned earlier in this thread. Most of them don't look so bad and seem to be doing a good job with their diversified portfolios

Mawer Balanced Fund, -2.09%
BMO Monthly Income D Series, -3.03%
BMO Balanced ETF Portfolio D Series, -4.03%
Tangerine Balanced Portfolio, -4.28%
Beutel Goodman Balanced D Series, -5.36%
PH&N Balanced D Series, -6.52%
 
#41 ·
BMO had to respond to iShares for the simple reason BMO is 2nd largest in Canada in terms of AUM and have been chipping away at iShares lead. They cannot be left behind in this horse race.
 
#42 ·
This type of fund would have both positives & negatives. A big negative I see if one asset class goes to zero balancing would wipe the fund out. The more asset classes the greater the chance of an asset going to zero.

Like a poker game every table is the same the money flows to the strong hand or hands the majority will lose a balanced fund is no different
 
#47 ·
That's really interesting James, thanks for those calcs.

I'm not sure that proves the case for paying a fairly high MER though. I wonder what the CAGR would be for the same portfolio setup with ultra low fee ETFs like VCN/VAG. (Although I don't think those go back to 2007).

More importantly...What I took away from your case study, was the value of sticking to a disciplined approach. That's a decent return for someone getting started at the worst possible time.
 
#48 ·
Yes.

Here is a link to Norm Rothery's wonderful Stingy Investor Asset Mixer for a 60/40 ETF portfolio.
http://www.ndir.com/cgi-bin/downsid...tSize=1000.00&Withdrawal=0.00&CADUSD=Canadian

The asset allocation is 40% all Canadian bonds, 20% TSX, 20% SP500, 15% EAFE and 5% Emerging. Alpha (~MER) is set as Global Alpha Assumption for ETFs (which is actually high compared to what many funds MER is today). Start date is 2008 / End date 2018 (James said start date for his comparison was late 2007, but the asset mixer only allows selecting full years). Changing the start date one year in either direction can make a big difference in the return.

Average Gain (geometric) is 5.5%. So ETFs would have had about the same return as the D-series balanced fund.

But yeah, James has a good point that many, perhaps even most people will not effectively manage even a simple ETF portfolio.

A friend age early 70s complained to me a couple of times about their portfolio that includes high-fee and DSC funds at Investors, some mutual funds at another bank and lots of cash from matured GICs, and asked for recommendations. They don't need any of the money for living expenses, and it is intended for an inheritance and bequests. I provided some reference material on investing in general, and ETFs. My inclination is that an asset allocation ETF like VBAL/VCNS or ZBAL/ZCON would be most suitable, due to the simplicity. I'm not asking for input here, just using this as an example of how for many people a simple set and forget portfolio that takes away the temptation to tinker and screw it up is most likely the best choice.

It will be very interesting going forward to compare the performance of asset allocation ETFs to existing low-fee balanced funds like Mawer Balanced and BMO Monthly Income D.
 
#50 ·
GreatLaker -- on your comment about "set it and forget it" portfolios. I'm increasingly thinking that DIY portfolios made of index ETFs, like my case study, are a bad fit for people who want "set it and forget it".

The owner of my case study account was this kind of investor. They hardly ever logged into the account and had no intention to rebalance. Cash drag was inevitable with this kind of scenario. DRIP was not a realistic option as this was non-registered. I think the ETF portfolio requires a bit more engagement than this, at least doing cash management & rebalancing.

That being said, their return was acceptable and certainly beat some mutual funds, so maybe I'm overdoing the point.
 
#52 ·
Is there a reason people have only mentioned MAW104 and not MAW 105? Mawer has two balanced funds, which are essentially the same, with MAW 105 having "tax effective" in its name.

Regarding the reality that "past performance is not indicative of future results," even those who work at Mawer are the first to say that. I know this because an investment counsellor at Mawer said exactly that to me before I decided to invest in their funds balanced funds.
 
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