Canadian mutual funds have performed poorly over the last ten years, according to a new report from Standard and Poor’s. The data shows that most equity funds in Canada have failed to match the performance of their benchmark index. In 2015, Canada was found to have the highest mutual fund fees in the world. It should come as no surprise, then, that more Canadian funds have trailed their benchmarks than comparable funds in other developed countries. Domestic Equity and US Equity funds in Canada fared far worse than funds in those same categories in the U.K., Japan, Australia, and the U.S.
Data source: 2016 SPIVA Canada Year-End Report, 2016 SPIVA Europe Year-End Report, 2016 SPIVA Japan Year-End Report, 2016 SPIVA Australia Year-End Report, 2016 SPIVA U.S. Year-End Report
Mutual funds fees and sales practices have been the subject of numerous CBC Go Public stories recently, anecdotally documenting the effects of high fees and conflicts of interest on Canadian investors. One of the reasons that Canadian fund fees have remained so high is that they contain a built-in commission that goes toward compensating the advisor. A 2015 report found that funds that contain embedded commission attract new assets even if their performance has not been good.
Despite large amounts of data supporting the low-cost approach of index investing, Canadian investors have been slow adopters. Index funds do not generally pay commissions to financial advisors.