Cost matters and many more people are starting to examine the costs of their investment portfolios, sometimes finding nasty surprises. Every now and then a financial commentator will write an article indicating that actively managed funds with MERs over a certain number should be tossed out of an investor’s portfolio. Usually the article will state 2% for domestic-mandated funds and maybe 2.50% for funds that invest outside of North America.
There’s High, And Then There’s HIGH!
Just for fun, I decided to use Globefund.com to look up funds with the highest MERs that are RRSP eligible. I’ve listed all the funds with MERs over 8%, but note that many of the funds have performance bonuses – for example, they may charge a set management fee, but have a performance bonus of 20% of the excess returns generated over and above a benchmark – which can lead to these astonomical MERs.
Many of the funds fall into the LSIF category which may or may not have performance bonuses, as well as stiff base fees. Many investors have been burned by investments in Labour Sponsored Investment Funds – being locked into funds for 8 years to avoid clawing back of the tax savings they earned for first investing in them. Many investors can be lured by the dangling carrot of extra tax savings, but it’s important to pick your investments based on their mandate and fundamentals first.
Funds with MERs Over 8%
| Dynamic Power Hedge Fund-F | 13.94% |
| Dynamic Power Hedge Fund-A | 12.63% |
| Dynamic Power Emerging Markets | 11.24% |
| DMP Resource Class | 10.44% |
| VenGrowth III Invst Fd Inc.Cl-A SrA | 9.99% |
| VenGrowth III Invst Fd Inc.Cl-A SrB | 9.99% |
| VenGrowth III Invst Fd Inc.Cl-A SrC | 9.93% |
| Front Street Energy Gw Fund Ser-III | 8.89% |
| VentureLink Brighter Future V | 8.47% |
| Stone & Co. Longevity Global Div C | 8.44% |
| GrowthWorks Cdn Income II | 8.31% |
| GrowthWorks Cdn Diversified II | 8.28% |
| Stone & Co. Longevity Global Div B | 8.27% |
| VentureLink Brighter Future IV | 8.27% |
| VentureLink Brighter Future III | 8.26% |
| GrowthWorks Cdn Growth II | 8.24% |
| Sprott Bull/Bear RSP (08/29) | 8.24% |
| GrowthWorks Cdn Financial II | 8.21% |
| Advantage Venture | 8.20% |
| GrowthWorks Cdn Balanced I | 8.18% |
| GrowthWorks Cdn Growth I | 8.10% |
| GrowthWorks Cdn Diversified I | 8.07% |
Don’t get me started on LSIFs!
The problem with paying the tax hit is that you have to repay the original credit – even though the investment is probably worth 1/3 or what you paid for it. So I suspect if you are anywhere close to the end of the 8 years then it is better to wait it out.
Mike
I’ve never found a fan of LSIFs. :) I remember seeing a prospectus with a 10% commission to the selling agent as well – that such a high commission is needed to sell a product should be a warning sign. (Of course, most investors would not be made aware of this.)
But good point – do the math first before making any decisions.
Uh, wow.
Just… wow.
Hey Preet:
You say LSIfs dont have performance fees. Most actually do.
In some of the LSIFs listed its the performance fee that driving the high MER. No one likes high fees, but I’ve more sympathy for performance fees.
@Ben – sorry my wording was awkward. I didn’t mean to indicate that LSIF’s necessarily don’t have performance fees. I’ve amended the post to read better – thanks for the note! :)