Friday, September 17, 2010

Bought EWH_Love ETFs but not mutual funds

A few years ago I bought about $8000 of the HSBC Chinese Equity Fund (HKB517). Today I sold the stuff. I almost got back my $8000.

I am now retired and if it isn't pumping out dividends and it isn't appreciating, it should be history. I dumped the HSBC Chinese Equity and bought some iShares MSCI Hong Kong Index FD ETF (EWH). I got 400 EWH shares at about $17.31 counting the brokerage fees. EWH is rated a low risk ETF with an above average return.

As this didn't use all the $8000, I decided to put $500 into a rule breaking investment --- Mawer World Investment Fund (MAW102). I say rule breaker because this fund pays only an erratic dividend and then only once a year in December. Last year it paid 1.88%. And this is a mutual fund and not an index ETF.

So why did I break my own rules, why did I modify my portfolio? Well, I own some Mawer World already and like it. It has done well by me. Today it is rated a 5 star fund by Morningstar and despite changes in management, it is still on the their Picks list.

The deciding factor was my portfolio allocation. By selling the Chinese equity I was underweight in my international exposure. The purchase of the EWH didn't put all back in balance and so I bought the Mawer World as I felt comfortable increasing my holdings.

When the dust settles there may be some change left on the table. I will stick that into the CIBC Monthly Income Fund as I still have some portfolio allocation room in the CIB512 space.

Now, for the second half of this post. You know, the part about not loving mutual funds.

A few years ago I went through a mutual fund stage. I got burned time and time again. I am now in the process of extricating myself from those investments. One of the funds that I bought was the RBC O'Shaughnessy US Growth fund. It came highly recommended with lots of stars. Sadly most of its stars fell from the investment sky and today only 2 stars remain dimly glowing. Morningstar has removed this fund from their list of Fund Analyst Picks.

As of today I am down 57.07% with this investment. Investment?

This is an interesting turn of events. Do you recall the book How to Retire Rich by James O'Shaughnessy? I do.

According to Common Sense Advice:  

"Jim set up a set of mutual funds a few years back, promising to use his strategies in the funds. Of O'Shaughnessy's four original funds, only one beat either the Standard & Poor's 500-stock index or its average comparable fund, as measured by Morningstar. And that one, Cornerstone Growth, prevailed by a sole percentage point."

For me, this mutual fund has been a dog and a big drag on my earnings. Despite O'Shaughnessy's popular book, his appearances on television, the connection with the trusted Royal Bank, James got it wrong. It appears, one important step in retiring rich was to not invest in one of the O'Shaughnessy funds.

The above is from a Morningstar chart showing the preformance history of the RBC O'Shaughnessy US Growth Fund. Not only is it consistently in the 4 quartile, it is at the bottom. The black square at the bottom of each column represents the fund.
Why do I continue to hold it? Nothing in life is perfect. Surely this fund cannot keep its perfect losing streak going forever. Can it?

For another look at claims of retiring rich and being sucked almost dry check my post on my Freedom 55 investment.


On Sunday, Sept. 26th, 2010, while reading the Globe online I noticed my RBC O'Shaughnessy U.S. Growth fund was among the one day gainers with a bump of 3.86 percent. Like I said, it can't be on a perfect losing streak forever. My exit window may be coming.

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