I own units in the Invesco Global Companies Fund (Series F), one of the funds that CI Global Asset Management will take over managing from Invesco. We’re told there will be no increase in the management expense ratio (MER) for 12 months after CI Global closes its acquisition. I’m taking that as a red flag that it will increase after the 12 months. What are your thoughts?
I wouldn’t worry too much. The MER on Invesco funds includes operating expenses, which are not fixed, while CI GAM uses fixed administrative fees, a difference that may help to explain the 12-month guarantee. I asked CI GAM about their plans, and here’s what spokesman Murray Oxby said:
“We expect the funds to benefit from greater economies of scale and operational efficiencies, which could result in lower operating costs. CI GAM agreed to one year of fee protection to help ensure a smooth transition for securityholders while the benefits of integration and scale are realized.”
That may or may not provide some reassurance. For me, the bigger question is whether this particular fund is appropriate for you even without an increase in fees.
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Fund documentation indicates a management expense ratio (MER) for the Global Companies Fund just north of 1 per cent. That’s not astronomically high for an actively managed mutual fund, but it also doesn’t tell the whole story.
Series F funds like the one you hold don’t have embedded fees for advisers as Series A funds do, but Series F funds are offered through fee-based adviser accounts. The idea is that this is more transparent because adviser costs aren’t tied to the product. The result can still be a lot of money going to fees.
What are you paying for? As of the end of January, the top five holdings of the Global Companies Fund were Nvidia Corp., Microsoft Corp., Apple Inc., Alphabet Inc. and Amazon.com Inc., the top five companies in the S&P 500 Index by market capitalization.
After that, you get a pile of short-term debt and cash equivalents, another tech play in Taiwan Semiconductor Manufacturing Co. Ltd., and rail operator Canadian Pacific Kansas City Ltd. Financials in the form of Mastercard Inc. (also in the S&P 500’s top 20) and Britain’s 3i Group PLC round out the top 10.
Invesco says investing in it gives you “exposure to a core global fund that invests in some of the most dominant business franchises in the world.” Do you really need to pay 1 per cent on top of an advisory fee for that kind of exposure?
With the standard caveat that past performance isn’t a guarantee of future returns, the Invesco fund has lagged Canadian dollar net returns of the S&P 500 every year for the past 10. Looking at it globally, the fund has also trailed Canadian dollar net annual returns for the MSCI Global All-World Index seven times since the end of 2015.
I thought that it might at least provide steadier performance than an all-equity index. So, I was surprised when I ran the numbers to find that, in loonie net return terms, the S&P 500 showed only marginally more annual volatility over the past decade than the Global Companies Fund.
If you like the fund’s debt cushion, you might look at ETFs such as the iShares Core Growth ETF portfolio (XGRO), which targets an 80/20 mix of equities and fixed income. With an MER of just 0.2 per cent, it has exhibited roughly comparable performance to the Global Companies Fund over the past decade with significantly less volatility. And you don’t need a fee-based advisory account to hold it.
All of this is not to say that the Invesco fund is the wrong choice for you: It may suit your specific financial and personal circumstances. But examining it through the lens of your goals and as part of a broader financial plan will likely prove more useful than worrying about a change in fees.
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Another reader asks: Is there a consensus amongst planners regarding draw-down strategy?
Andrew Darch, an advice-only financial planner at Kinridge Financial in Ottawa, told me that differences in savings, pensions and lifestyle choices make it impossible to prescribe a one-size-fits-all solution.
With that out of the way, what strategy is best?
“Give the government the least amount of money you can. Legally, of course,” Mr. Darch said.
He suggested gradually drawing down your RRSP with the goal of having it depleted by age 70, while maximizing TFSA contributions and minimizing income by deferring CPP and Old Age Security as long as possible.
E-mail your questions to agalbraith@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.