Last week, the latest edition of the SPIVA scorecard was released by Standard and Poor’s. This report, which documents annually the performance of active equity mutual funds relative to market indices came to its usual conclusion: over five years, the vast majority of active funds underperform. Among the fund categories, the results for Canadian Dividend & Income Equity were of particular interest.
Not only did a majority of dividend funds under perform, but its score actually was the lowest possible: 0% of dividend funds outperformed the S&P/TSX Canadian Dividend Aristocrats Index. Yes, you read well: not one of these funds outperformed over five years! All these funds not only failed to beat a pretty simple benchmark, but they also collectively under performed by a whopping 3.51% (9.03% vs. 12.54%).
This result does not seem to be an accident of history, as the SPIVA report has consistently reported extremely poor numbers for dividend funds in past years.
Table 1: Percentage of Canadian Dividend Funds Outperforming the Index Over Five Years
|
|
2007 |
0% |
2008 |
3% |
2009 |
0% |
2010 |
0% |
2011 |
10% |
2012 |
6% |
2013 |
0% |
2014 |
0% |
Source: Standard & Poor’s
The SPIVA report also documents the survivorship of mutual funds, or the percentage of funds in each category that is still in business after five years. Active funds experienced fairly low survivorship, generally ranging between 60 and 70%, which is not surprising given their poor performance record. Paradoxically, investors in the worst-performing fund category are the most loyal: dividend funds has an 85% survivorship rate!!
Conclusion
Dividend-oriented active mutual funds have the worst record among a bad pack of underperforming active mutual funds. Yet, these funds’ misinformed customers are by far the most loyal of any category. This is not a problem for PWL clients, as our firm does not invest in traditional active funds. But for holders of Canadian dividend funds, it’s time for a change: you can obtain a better return! I suggest to you to consider the following list of index exchange-traded funds, which will most likely perform similarly to their benchmark index (they will actually underperform slightly due to their modest fees!).
Table 2: Canadian Dividend Funds Index ETFs in Canada
Name |
Ticker |
Management Expense Ratio |
iShares Core S&P/TSX Composite High Dividend |
XEI |
0.30% |
Vanguard FTSE Canadian High Dividend Yield ETF |
VDY |
0.30% |
iShares Canadian Select Dividend |
XDV |
0.55% |
PowerShares Canadian Dividend ETF |
PDC |
0.55% |
iShares S&P/TSX Canadian Dividend Aristocrats Common |
CDZ |
0.66% |
First Asset Morningstar Canadian Dividend Target 30 ETF Common |
DXM |
0.68% |
Source: Morningstar Direct
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