Wednesday, October 16, 2013

BlackRock Canada Launches New Mutual Funds

BlackRock Canada has launched seven new mutual funds that are built with the iShares ETFs. The main difference between these funds and the typical mutual funds that Canadians own is that BlackRock’s funds are based on passive index investing instead of active stock-picking and the new funds have somewhat lower fees. However, the new funds are still much more costly than building a do-it-yourself portfolio directly using low-cost index ETFs.

The new funds consist of six funds covering a range of risk levels along with a seventh fund focused on monthly income. The following table shows the target allocation and costs of the various new funds (management fees plus administration fees for the Series A funds). I compiled this information from the simplified prospectus.

Fund Name Fixed
Income		 Canadian
Equities		 U.S.
Equities		 Foreign
Equities		 Fees
BlackRock All Bond
Portfolio
100%
0
0
0
1.15%
BlackRock Defensive
Portfolio
75%
15%
5%
5%
1.5%
BlackRock Conservative
Portfolio
60%
20%
10%
10%
1.5%
BlackRock Balanced
Portfolio
40%
30%
10%
20%
1.55%
BlackRock Growth
Portfolio
25%
40%
10%
25%
1.55%
BlackRock MaxGrowth
Portfolio
0
45%
15%
40%
1.6%
BlackRock Diversified
Monthly Income
Portfolio
65%
35%
0
0
1.55%

The fees for Canadian actively-managed mutual funds are usually in the 2-3% range. The BlackRock mutual funds look good in this comparison. The new funds’ fees are high enough to cover trailer fees paid to financial advisors, so these funds are likely to become popular with advisors.

I’d like to think that any investor who sees the make-up of these funds could easily buy the underlying ETFs directly and avoid paying the extra 1%+ every year. However, for various reasons this is difficult for many investors. These people are doomed to pay the extra 1% that builds up year after year to about 22% after 25 years. Overall, these new funds are pushing fees down which is good for investors, even if these fees could be much lower still.

Disclaimer: BlackRock did not pay me (directly or indirectly) for this review, and I do not own any of these funds.
Posted by at 12:01 AM
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3 comments:

  1. Bet CrooksOctober 17, 2013 at 9:37 AM

    I had a relative who used to work for a major razor blade and razor company. He told me that in order to maintain market share they had to re-name and re-package their products every 2-3 years. They didn't have to actually *change* the products or the prices but people get tired of buying the same thing and would switch to a competitor just to try something in a new package.

    I wonder if mutual funds are following the same marketing strategies?

    ReplyDelete
    Replies
    1. Michael JamesOctober 17, 2013 at 9:43 AM

      @Bet Crooks: Getting some sizzle from repackaging and renaming mutual funds may be a side benefit, but the main benefit for actively-managed funds is burying failures. Fund companies routinely close funds with poor long-term records. Usually the assets under management just get moved to some similar fund. Then other new similar funds are created.

      However, none of this should apply to BlackRock because they have index funds. There is no poor performance to mask. I think the motivation in this case is to repackage Canadian ETFs in a way that gets access to the market served by mutual fund salespeople who expect trailng commissions.

      Delete
  2. Bet CrooksOctober 17, 2013 at 11:55 AM

    Makes sense. There is a huge amount of money moving through the hands of mutual fund salespeople. They used to even have some of mine!

    ReplyDelete

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