How does your portfolio measure up?

 

Subject: How do you measure up? 
From:Bylo Selhi 
Date: 03-Mar-98-05:06 PM 

How has your portfolio performed during 1997? 

 For the year ending December 31, 1997 

Quarter 1 Year 2 Years 3 Years 4 Years 5 Years
ISR Canadian Pension Fund Index -1.0 13.5 15.9 16.5 12.1 14.0
The ISR Canadian Pension Fund Index replicates the median pension fund by taking the average fund's asset allocation over the previous calendar year and multiplying these weights by their respective market index return. The ISR index is reset at the beginning of each calendar year. For 1998 the index remains unchanged at: 
41% Canadian Equity (TSE 300)
8% U.S. Equity (S & P 500)
8% International Equity (EAFE)
37% Bonds (SCM Universe)
1% Mortgages (SCM Mortgage)
5% Short Term & Cash (SCM Tbill)
The benchmark forms the basis for the InterSec's attribution analysis universe that assesses the relative value added of asset allocation and security selection decisions of Canadian pension funds. 

 

From Benefits Canada website. 
 

Subject: RE: How do you measure up? 
From:GaggleII 
Date: 03-Mar-98-07:00 PM 

I have a question to ask... 

Hey Bigblow...spare us your drivel...anyone who's in equities today is asking to get suckered...index or no index fund. 

By the way, byblap, if you're looking for mediocrity, you're on the right track....talk you in a few months bean brain. 
 

Subject: RE: How do you measure up? 
From:thbox 
Date: 03-Mar-98-07:39 PM 

I don't tink he wykes you bylo! 
 

Subject: RE: How do you measure up? 
From:praxis 
Date: 03-Mar-98-08:51 PM 

Bylo .... 

FWIW, you're on my short list of the most respected voices on this forum. Ignore the innane comments. I believe most of us here appreciate your contributions. 
 

Subject: RE: How do you measure up? 
From:teggaubarr 
Date: 03-Mar-98-09:43 PM 

hey Bylo i really look forward to your insights as well; so please keep it coming. As to how well did i measure up , well I guess i should quit complaining . the last few years have been great especially the last three.my portfoloio that was invested as of 1994 has now doubled. All of the new investments have done okay as well. 
 

Subject: RE: How do you measure up? 
From:Richard Deschene 
E-mail: RDeschene@recorder.ca 
Date: 04-Mar-98-02:13 AM 

Hi Bylo. Well it is obvious that the ISR index has a HEAVY bond weighting which couldn't have helped it's performance much. Still, 14%/annum for the last five years is a real rate of return of around 12%!!! :-) 

And, to be honest, I had about 25% of my portfolio in the Asian markets until last spring - I reconsidered my approach to "immature" stock markets by using Global or International equity funds instead from now on. This non-productive (made 20bucks over 3yrs) dragged my 3year average annual return for my portfolio down to 16.5%, and a return in 1997 of 26%. It will interesting to see, in the years to come, if going 100% equities right now will generate higher net returns or just more volatility!!! See ya. 
 

Subject: RE: How do you measure up? 
From:Bylo 
Date: 04-Mar-98-06:33 AM 

I posted this (without comment) in order to stir up some debate. Guess I succeeded :-) 

Purpose of the post: It seemed to me that for what most people here would consider to be a conservative portfolio, Canada's pension fund managers did rather well. 

Today's question: Do you think our CPP would be in half the trouble it's in if its returns were even close to the ISR benchmark? 
 

Subject: RE: How do you measure up? 
From:Scanner98 
Date: 04-Mar-98-11:10 AM 

How would the two fare in the "choice of evils" test? 
 

Subject: RE: How do you measure up? 
From:Ralph 
Date: 04-Mar-98-12:02 PM 

Do you think our CPP would be in half the trouble if its returns were even close to the ISR benchmark? 

The answer can only be YES. The CPP has been abused and misused by our elected politicians and their obliging swivel servants from the inception. The money that we were forced to put into this Plan has been squandered on a yearly basis on political patronage and programs that are now either defunct or bankrupt. 

The CPP would also be 1000% better if the money in the Plan was just sitting in T Bills or Money Market Funds. 

Gaggle II, you forgot to wash your mouth with soap yesterday. I would suggest that you find a more suitable contributor to insult. 

Bylo is knowledgeable and respected at the FL Discussion Forum and your comments are disgraceful. 
 

Subject: RE: How do you measure up? 
From:Howard 
Date: 04-Mar-98-01:08 PM 

Hey Bylo, do you want me to beat him up? Good Posting.. 

I enjoy your comments. 
 

Subject: RE: How do you measure up? 
From:Yard Stick 
Date: 04-Mar-98-02:54 PM 

I assume someone p------ in Gaggles corn flakes this morning . Maybe he doesn't ...measure up ! 

Mrs . Gaggle are you there ? 
 

Subject: RE: How do you measure up? 
From:Mrs. Gaggle 
Date: 04-Mar-98-03:10 PM 

Truth be told, my husband is severely gonadally challenged. Oversexed and undersized is about the long and the short of it. Don't feel sorry for me, though; I enjoy discreet encounters quite often and poor Gaggle II is none the wiser. 
 

Subject: RE: How do you measure up? 
From:Hmmm 
Date: 04-Mar-98-03:22 PM 

Given her description of hubby, perhaps Mrs Gaggle should really be Mrs Non-Gaggle. Just a thought. 
 

Subject: RE: How do you measure up? 
From:Secret Agent Man 
Date: 04-Mar-98-11:17 PM 

Bylo 

Keep sending the charts ! I'll hunt down Gaggle myself . On the other hand you could probably "delete" him yourself , no fuss no muss . 
 

Subject: RE: How do you measure up? 
From:Richard Deschene 
E-mail: RDeschene@recorder.ca 
Date: 05-Mar-98-02:10 AM 

Do you think our CPP would be in half the trouble if its returns were even close to the ISR benchmark? 

I don't quite get Ralph's comments on this one. Based on auditor reports the C.P.P. HAS been getting within the ballpark of T-Bill returns through lending funds to provinces at interest rates not linked to their actual creditworthiness (i.e. at LESS THAN they would be charged on their respective Provincial bonds). Clearly an ISR-indexed CPP fund would be both superior to what we have now and still reasonably conservative. 

Just as an individual investor has to be concerned with growth AND security, so does the CPP. The fact that the CPP is managed worse than its private-sector counterpart is just another indication that we'd be better off with private-sector management of the CPP. My vote goes to: 50% managed by Bissett, 50% by PH&N. Even 100% by PH&N would be fine by me :-) 
 

Subject: RE: How do you measure up? 
From:Bylo 
Date: 05-Mar-98-08:59 AM 

My point re CPP is that a conservatively managed portfolio as exemplified by the ISR CPF index would have beaten the CPP by a country mile. 

I'll bet the MP's pension plan, like most large public and private sector pension plans, is invested in a portfolio that's pretty darn close to the ISR CPF. 

CPP - the pension plan for the rest of us1 

1and look where that slogan got Apple Computer (sorry Scanner98.) 
 

Subject: RE: How do you measure up? 
From:Ralph 
Date: 05-Mar-98-10:10 AM 

Richard, my comments were written tongue in cheek. 

The CPP mismanagement could only have been tolerated in a country as docile and uninformed on pensions as Canada is. 
 

Subject: RE: How do you measure up? 
From:Scanner98 
Date: 05-Mar-98-11:01 AM 

So Ralph, which country is doing better and how are they doing it? 

And Bylo, it still is the computer for the rest of us; it's just that they somehow wound up with some of the worst managers possible. Pepsi probably paid Apple to take the guy off their hands! :-) 
 

Subject: RE: How do you measure up? 
From:Bylo 
Date: 05-Mar-98-11:10 AM 

Scanner98, not to rub it in too much, but sources tell me that Dr. Kevorkian is on Steve's short-list to become Apple's next CEO. :-) 
 

Subject: RE: How do you measure up? 
From:Bylo 
Date: 05-Mar-98-12:50 PM 

Another day, so let’s stir up the pot some more… 

Suppose we create a balanced fund (which I’ll modestly call Bylo’s Balanced Fund) by blending the various indexes in the proportion shown at the top of the thread. Here’s how BBF compares the pension pros’ index: 
 
 Portfolio
1-yr
3-yr
5-yr
10-yr
Bylo’s Bal Fund
13.5
17.5
14.6
11.1
ISR CPF Index
13.1
16.5
14.0
-
difference
-0.4
-1.0
-0.6
 
  

Conclusions, questions, comments… 

  1. Canadian pension fund managers, once we pay them a management fee of say 60 basis points, can just about equal a blend of "dumb" indexes (at least over the past 5 years.)
  2. BTW, does anyone have 10 and 15 year performance numbers on the ISC CPF index? (Warren?)
  3. An individual investor can approach the performance of the pros by creating a balanced portfolio out of low MER funds and pseudo-funds like PH&N Bond, TIPs, HIPs, SPYs, etc.
  4. Some anti-indexers claim that managed funds have a tough time beating index funds during bull markets because managed fund managers are handicapped by the cash they must keep on hand. Well BBF’s all-index portfolio was also handicapped by holding about 7% in cash during the best bull market we’ve ever seen, yet it still beat the pros. How come?
  5. Canadian pension fund managers, as evidenced by the ISR CPF index, don’t seem to need to have more than 20% foreign content in their portfolios. Again, how come?
  

Now here’s a list of several well-known balanced funds encompassing the spectrum of load vs. no-load, low MER vs. high MER, conservative vs. aggressive: 
 
 Portfolio
1-yr
3-yr
5-yr
10-yr
Bissett Ret
17.1
21.2
16.0
-
GS Income Plus
22.1
20.8
16.6
-
PH&N Bal
11.4
16.5
13.5
-
Trimark Inc Gr
5.0
14.6
13.7
11.5
Sceptre Bal Gr
11.8
21.0
15.5
11.9
Avg Can Bal Fund
10.2
15.1
12.3
9.8
BBF Index
13.5
17.5
14.6
11.1
difference
-3.3
-2.4
-2.3
-1.3
  

Hmmm… more conclusions, questions, comments… 

  1. It looks like some of the pros can beat the BBF index some of the time but few can beat it all of the time. The challenge is how to guess today who will turn out to have been the star manager 10 years from now. 
  2. Note also that the average balanced fund seems to consistently lag the BBF index by about (could it be?) the amount of the average MER for Canadian balanced funds (2.14% according to PalTrak)!!!
  3. So what’s going on here? It seems the pros can't consistently beat the index. So why not just go with something like the BBF index -- or at least as close as we can get to it with mutual funds -- then sit back and simply let "nature take its course?"
Where’s the hole in my analysis? Let's have some "balanced" discussion on this. 
 

Subject: RE: How do you measure up? 
From:Scooby 
Date: 05-Mar-98-02:03 PM 

Spot on as usual, Bylo. But I would disagree with your statement the Canadian pension managers don't need more than 20% foreign content. Imagine what they would have earned if their stock holdings had tracked the S&P instead of the TSE! Especially if you ran the numbers as of, say, 1993, before the TSE started having a number of good years. 
 

Subject: RE: How do you measure up? 
From:Ralph 
Date: 05-Mar-98-03:30 PM 

Scanner 98, 

So Ralph, which country is doing better and how are they doing it? 

Just look at most European countries. Even much maligned Italy with its mafia related problems runs an exemplary national pension plan we can't even dream about. Contributions are heavy and mandatory, but most people retire with an indexed pension that is close to the salary just before retirement. Contributions are pooled and invested by professional managers in a variety of financial instruments. 

Not only the money can't be squandered like we do here, but it is also invested to everybody's benefit. 

In Canada only few selected groups enjoy similar benefits like our MPs, swivel servants and teachers. 
 

Subject: RE: How do you measure up? 
From:Scanner98 
Date: 05-Mar-98-05:21 PM 

Bylo, 

Actually, Kevorkian has been quietly on the payroll in the Merchandising dep't for several years now! Fortunately, the Product Development dep't has managed to keep out of his way! :-) 
 

Subject: RE: How do you measure up? 
From:PK 
Date: 05-Mar-98-06:09 PM 

Hi Bylo - I don't think there is a hole in your analysis. I've come to the conclusion that a very viable strategy is to decide on a appropriate asset allocation based on your risk profile and then find the lowest cost investments available that allow you to implement the strategy. I only wish there were more alternatives around in Canada that would allow for a thorough implementation -- just try, for example, to find low cost index oriented investments for Europe or Asia. Additionally, the costs of passively buying the Canadian market are way too high -- TIPS and HIPS are good alternatives, but they do not perfectly match the broader Canadian market. 

Just a couple other points: 

1) Nothing prevents investors from implementing this strategy in a more (or less) aggressive way than the ISR index. Just decide on your risk tolerance and do the weightings accordingly. 

2) I think its a good idea to think more broadly than just, for example, indexing the SP500. While this would be a core holding, investors should also get representation in other indicies -- say the Willshire 5000 or specific indicies that mirror small caps or value picks. 

3) My one caveat to indexing is there is some evidence that active management may provide some benefits in the small cap arena. As well there seems to be some extra return to be had in the Value area. This evidence is not clearcut, the research is ongoing, and the benefits are not hugh -- even here keeping your costs low is very important. This extra return is also probably at the expense of added risk (even in the value area! Academics have taken to calling Value stocks "distressed stocks" just to make the point). At any rate, depending on your risk tolerance, some money could go into actively managed small caps. That's why I invested in Bisset' small cap fund and am thinking about taking a flyer on their Microcap fund. Afterall you have to have a little fun. 

4) If you ever do open your own BBF fund you may have to change your moniker on this forum. Bylo-Selhi kind of smacks of market timing and doesn't really match a passive approach. Maybe ByAnytime-SellAnytime? 
 

Subject: RE: How do you measure up? 
From:Bi-Anne Holde 
Date: 06-Mar-98-08:46 AM 

Bylo's better half? 

[Home | Back | Forward | Archive | ContactUs | Disclaimer | Glossary | Links | Search]