Brant’s Market View
Keith McMeekin
April 2008
Defining Your Real Risk
One of the most common questions I am asked by potential clients is: “How can I reduce
my financial risk?” To which I must always ask: “How are you defining risk? Is your
real risk the degree to which your portfolio changes in value over the short term or, is
your risk the possibility of not meeting your long term investment objectives? I submit
that not having enough money for your retirement is a much greater risk than having your
portfolio produce negative returns in any one year.
Investors should focus on attaining superior long term results rather than avoiding
short term price volatility.
The chart below1 compares the returns generated over the past 10 years by three
conventional2 funds and two non-conventional or “aggressive” funds managed in my
opinion by two of the best managers in Canada. The two non-conventional funds are
ones I have bought for my clients; the three conventional funds I choose at random from
globefund.com3.
My definition of a conventional fund is one in which the manager more or less mimics
the index, thus having performance and volatility more or less in line with the index,
while on the other hand these non-conventional funds are managed by individuals who
develop their own ideas and act accordingly.
1
2
3
All calculations made to produce this graph are solely those of Brant Securities Limited.
The categorization of the funds as to aggressive or conservative is solely that of Brant Securities Limited.
The Globe and Mail website dedicated to mutual funds.
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Aggressive/Conservative Fund Comparison
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
AGG - 1
AGG - 2
CON - 1
CON - 2
CON - 3
1998
2000
2002
2004
2006
Over the ten-year period ending December 31, 2007, the aggressive funds have
outperformed the more conservative funds by factors of 6:1 and almost 8:1. Even if
either of the aggressive funds had a decline of 50% next year, each would still be far
ahead of the three conventional funds.
Most investment management firms try to focus you on the year-over-year volatility, or
short-term risk, facing your portfolio. On the contrary, your main concern should your
portfolio’s long-term risk of not having the amount of money you planned on having in it
at the time you planned on having it!
If you are happy with market returns then you should buy an index fund and pay one-half
of one percent and not the 2.5% charged by traditional funds. As the man says on
television: “Save your money!”
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If on the other hand you want to pay the same fees you are presently paying, for the
services of two of the best managers in Canada, then do something about it and act!
Please excuse me for being blunt but, you – not the managers you hire – are ultimately
responsible for the returns you achieve on your investments.
The information contained herein may not be reproduced, quoted, published,
displayed or transmitted without the prior written consent of Brant Securities
Limited (‘Brant’). The opinions expressed are solely those of the author(s). They
are based on information obtained from sources believed to be reliable, but it is not
guaranteed as being accurate. The report should not be regarded by recipients as a
substitute for the exercise of their own judgment. Any opinion expressed in this
report is subject to change without notice and Brant is not under any obligation to
update or keep current the information contained herein. Brant employees and
their clients may or may not have positions in any of the companies mentioned in
this report. Brant accepts no liability whatsoever for any loss or damage of any
kind arising out of the use of any or all of this report.
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