Mutual funds are one of the most common investment vehicles for the average investor. They are comprised of a group of stocks and other investment options all rolled into one that someone else manages. You can pick a lot of different flavours when its comes to mutuals so look around. They are great for those who do not want to think about the investments all the time, but this does not mean you should not follow them at all. You would think that a professional fund manager would be able to make you a decent return, but this is often not the case. Funds can perform differently for variety of reasons.

• Difference in style by the fund manager. Some can be quite aggressive with most of the money invested in higher risk areas. Others can be very conservative, invested in a wide range of conservative areas, or they might even sit on large pools of cash and invest only when they believe the time is right.
• Mutuals are part of different sectors. Oil and gas as well as real estate have enjoyed significant gains the past couple years.
• Management Expense Ratio (MER). How much money does it take to maintain this fund. This is the money paying for the stock transactions, fund manager and his employees, other expenses related to managing a fund. A high MER cuts into your return. If the fund manager is a very aggressive trader this can be higher due to the transaction fees and number of analysts he has working for him.

The bottom line is...NOT ALL FUNDS ARE CREATED EQUAL. My biggest recommendation is to compare,compare,compare. When you are picking a fund (or your advisor is picking one for you), compare its performance to other funds of the same industry or classification. My favourite site is GlobeFund. You can get a good 2-4 page report from their site with a quick breakdown and comparison against funds that are in the same category over time. If a fund made 10% last year, but the average for its category was 15% you need to ask yourself, why? Or if the average over the past 10 years was 5% and the fund made 10%. Most likely it is the fund manager. If you are going to expose yourself to an industry, look for the fund manager who has had the most success, chances are, it will carry on.

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Category: Investing

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