Managed Money Reporter Newsletter — Issue 149, July 1999


Editors: Carl Spiess & Allan McGlade


Featured Articles



Measuring Success

Given the volatility of the markets over the past year, many people have been paying more attention to the performance of their portfolio. While monitoring the performance of your portfolio is important, measuring the success of your portfolio against the right benchmark is what is most important. If you don't use the right benchmark, you might make mistakes in the management of your assets.

Using Benchmarks

For years various benchmarks have been used to evaluate the performance of portfolios. Both equity and bond measurements are available on a second by second basis to tell us what is happening in the market. Each day on the radio, television and in newspapers there is ample information to tell us what happened in the markets. The Dow was up, the TSE was down, the dollar was down, gold was up and so on.

TSE 300

While benchmarks such as the Dow or TSE serve a purpose, it is important to make sure you are using the right benchmark to evaluate the performance of your portfolio. Unless you have exactly matched the index or benchmark that you are using to evaluate your portfolio, it is not indicative of what actually occurred in your portfolio. Using an incorrect measurement tool will inevitably lead to mistakes. It is extremely difficult for an individual investor to construct an individual benchmark and then mirror it on an ongoing basis. Benchmarks are much more useful for institutional investors partly because they have the resources to monitor those benchmarks and to make changes in their portfolio when necessary. It is seldom that using the TSE as an index will exactly mirror what an individual investor should be investing in based upon their objectives and risk tolerances. What then is the right benchmark for an individual?

What's Right for You

The benchmark or measurement of success that is right for you must be based upon your goals and objectives. By definition then, you need a plan to know what level of performance you require to determine whether you are achieving any level of success.

Suppose you completed a financial plan that, based upon all the assumptions that you used, you would require 8.0% annual return over the next 20 years to achieve the various goals and objectives that you have (retirement, estate planning, new car, cottage, etc.). If you actually achieved the plan, you would be happy because it would allow you to have the standard of living that you wanted and to provide for your beneficiaries. Your measurement of success is achieving that standard of living which means that the growth of your assets must occur at 8% per year over those 20 years.

Now let's look at the present year where we have experienced some market volatility and therefore big swings in performance.

The one thing that should jump out at you is that a one-day, one-week, one-month or for that fact even one-year performance should not be of great concern to you. Your time horizon, no matter what your age, is longer than whatever measure you may be using. Unfortunately, our expectations as investors have been increased to a point where we don't expect to have losses. While no one likes to have losses, it is pretty difficult to continually have gains on the level that we may like. Having a plan that you monitor relative to the achievement of your goals and objectives is what is most important.

O'Donnell Charity EventIf you look at the example above, remember that you are happy if you achieve 8% because it allows you to live the lifestyle that you want.

Use that 8% as a guide-if you get more than 8% in a particular year, that helps you in a year where you may not achieve the 8%. Remember you are in this for the long haul if you are going to achieve all your goals and objectives.

Human nature makes it difficult, but don't get caught up in the quagmire of daily monitoring. Measurement is important but you want long term performance - unless of course, you have a crystal ball and can time the market.

Unlimited Foreign Content

Unlimited foreign content may now be available within your RRSP, thanks to the latest innovation from the mutual fund industry. Mackenzie recently pioneered the next generation of the already popular 'RRSP' series.

To date, investors of the 'RRSP' series mutual funds could participate in an investment that tracked the various global market indices while still being 100% eligible. Tracking indices however does not give you the added value we expect from the professional management of a mutual fund.

The exciting new expansion to the 'RRSP' series takes investing in the foreign markets to the next level. Mackenzie's two new funds, the Ivy RSP Foreign Equity Fund and the Universal RSP Select Managers Fund, are linked to existing and established foreign content funds within the Mackenzie fund family, and are both 100% RRSP eligible. This added feature, along with the flexibility of being able to switch these funds within the Mackenzie family, make these an excellent new investment choice.

Similar funds will be launched by AGF in the month of July, and it is our understanding the many more fund families will be establishing funds of this type as well.

To see how this new class of funds can enhance your investment portfolio, call us for a review at (416) 863-7777 or 1-800-387-9273 or email us.

Fund News

Further to the departure of some key managers from the Spectrum family of funds, the following new alliances were recently announced:

Spectrum United Canadian Equity Fund will be managed by McLean Budden, one of Canada's leading investment counselors.

Spectrum United Canadian Growth Fund will assume a multi-advisor management structure including the management by; Howson Tatersall Investment Counsel Limited, Mulvihill Capital Management Inc and Mercury Asset Management

Spectrum United Canadian Investment Fund will now be man-aged by Mercury Asset Management under Kim Shannon, former lead manager of this very same fund.

Spectrum United Canadian Stock Fund will be managed by Massachusetts Financial Services, a Sun Life subsidiary.

 



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    allan.mcglade@scotiawealth.com

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