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Balanced fund returns (an update).


Individual investors know that the Pension Investment Association of Canada (PIAC) is a good reference point for their investment portfolio construction. What does the average Pension Fund in Canada look like? What do average returns look like?

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PIAC represents over 130 pension funds that manage total assets in excess of $1 trillion on behalf of millions of Canadians.” PIAC’s average asset allocation is a composite of these 130 pension funds. The average looks like a big balanced fund. The bond allocation is 33%, stock is 43% and real estate is 9%. That’s 85% of the portfolio. For the individual investor who follows this blog and mimics the PIAC asset mix, the remaining 15% is their opportunity to put their stamp of individuality on this PIAC Core portfolio. That might mean adding a Beutel Goodman small cap fund, for example, or specialty mandate like Mawer, New Canada, say, or something completely different like BluMont Capital, market neutral. Most often it’s simply a favourite stock.

What are Balanced Fund returns?

Unfortunately, PIAC does not report average returns. Were they to do so, however, the returns would look, well, average. (Average asset allocation = average returns). Typical (average) balanced fund returns are shown in the following table.

Returns to March 31
1 Year
2 Year
3 Year
4 Year
5 Year
10 Year
TSX Composite index
-9.8%
4.2%
15.6%
1.1%
1.6%
7.2%
DEX Universe bond index
9.7%
7.4%
6.6%
6.2%
6.1%
6.5%
Mercer median balanced fund*
1.3%
6.0%
11.3%
3.6%
2.6%
N/A
RBC Dexia balanced Pooled fund*
1.1%
5.8%
11.3%
3.6%
2.6%
5.8%
Dad**
2.7%
N/A
7.5%
N/A
0.8%
2.6%

Longer-term average returns look like the following graph.

Balanced Fund Returns 1965 - 2011

What can individual investors learn from this?

  1. Returns don’t spend much time at the average. (See chart).
  2. There is never a time of certainty … even for a balanced portfolio.
  3. A balanced fund spends very little time in negative territory. And the less time spent in negative territory, the faster portfolio returns compound.
  4. An investor can get a lot of stuff wrong … as long as they get their asset allocation approximately right.
  5. A balanced portfolio wins across many different market environments.

*Mercer and RBC balanced fund asset mixes approximate the PIAC asset allocation. PIAC allocation is 33% bonds, 43% stock and 9% real estate. Mercer median is approximately 45% bonds, 55% stocks. RBC Dexia balanced allocation is approximately 40% bonds, 60% stocks.

** Dad’s portfolio of index funds has a strategic mix of 45% stock, 45% bond & 10%. Only the asset mix is active. Current mix is 52% bonds and 48% stocks. Since inception, there were two negative years (-11% 2008 and -6% 2002).

See also Inattentional blindness.

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Next time? More Risk Management.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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