New investment approaches for risk-averse Canadians
By Jason Heath on April 28, 2021
Old-school investors may find the capital preservation techniques they have relied on in the past won t work the same in the future.
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Photo by Ono Kosuki from Pexels
Bonds have long been the solution for investors seeking capital preservation and reducing portfolio volatility. But falling interest rates have made it tough to earn a fixed income return while preserving capital.
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The current weighted average yield to maturity for the FTSE Canada Universe Bond Index is about 1.72%. According to Morningstar’s 2019 Global Investor Experience Study, the asset-weighted median expense ratio for Canadian fixed income mutual funds was about 1.49% for investors receiving commission-based advice. For investors in fee-based accounts, it was 0.85%, plus management fees (often another 1%).
Toward the end of 2020, Morningstar released the latest iteration of its Global Investor Experience study, with the chapter focused on Disclosure. I contributed to the study as the primary researcher and author for the section on the U.S. market. This study plays a valuable role in pushing the global fund industry toward best practices.
In this column, I’m using my work on the “2020 Global Investor Experience Study: Disclosure” as a jumping-off point to consider a more basic question: What does disclosure mean in the context of mutual funds, and why should it matter to investors? The truth is that disclosure practices aren’t just an abstract concept of concern to regulators and asset managers they’re highly relevant and of tangible value to investors.
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Most markets around the world have incrementally improved the environment for fund investors over the past few years through greater investment transparency a development that has been guided by better disclosure practices, including portfolio holdings disclosure. Transparency is important as it helps investors make better decisions and creates trust in investment vehicles and the firms that manage client assets.
This trend toward greater investment transparency was one of the top findings from the Disclosure chapter of Morningstar s 2020 Global Investor Experience study, which evaluates the environment for fund investors in markets around the world. As shown below, the highest overall Disclosure grades went to India and the United States, while the lowest went to Australia.