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248 Stocks. 703 Mutual Funds.


Over lunch this week, an actuary colleague pondered the question “How can there be more mutual funds than there are stocks on the Toronto Stock Exchange”?

Hmmm. Smart guy. Waterloo math grad. Actuaries usually make depressing lunch dates. They do, after all, study mortality tables. This was actually interesting.

I went to the Standard and Poors site and, sure enough, there are 248 stocks in the S&P/TSX composite index. (The Toronto Stock Exchange).

Then I went to the Globe and Mail, Globe Investor, Fund Filter and punched in ‘Canadian Equities’ mutual funds. There are 703 Canadian Equity mutual funds.

Strip out the duplicates (there are ‘A’, ‘B’, ‘C’, ‘F’ and maybe even ‘O’ class of the same fund) and 703 gets cut by 2/3rd, say. That leaves about 230 different mutual funds … but still only 248 stocks.

What’s the punch line?

There cannot possibly be that much differentiation between funds. Ergo, there must be a lot of mutual fund companies making a lot of money while delivering little value above the index … the TSE.

Individual investors who are still invested in or who are still buying mutual funds ought to look at the simple and lower cost alternative(s).

iShares S&P/TSX Capped Composite Index ETF (XIC). Number of holdings = 248. MER 0.25%.

TD Canadian index fund (e-series), MER 0.32%.

Next time?

Slim pickin’s.

Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan

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4 Comments Post a comment
  1. Ryan Vigneau #

    Makes you think… I think its a good eye opener for investors who think there is security in mutual funds

    Like

    May 4, 2011
  2. Morgan Jones #

    very, very interesting.

    Like

    April 25, 2011

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