Top performing funds have an irresistible lure to clients who insist on chasing returns year after year, despite your advice. You know that today’s fleet greyhound can become tomorrow’s tired dog, yet your recommendations are held to the performance standard of those passing stars. That’s the performance treadmill, and exchange traded funds (ETFs) can help you jump off it.

ETFs are designed to return benchmark results (less a small MER), so the more your clients’ portfolios are indexed, the less you have to run after performance. Instead of managing portfolios of mutual funds whose quartile ranking can fluctuate significantly, your clients will receive near benchmark returns on their investments. This increases the likelihood of good performance and decreases the risk of bad performance. Sure, you won’t always be running the 100-yard dash in under a minute, but you won’t be bringing up the rear in the marathon either.

Running after performance is a race you are almost certain to lose because winning funds don’t stay that way dependably. Of the 31 first-quartile equity funds in 1996, only one remained first quartile through each of the following three years. No first quartile fund from 1996 was consistently in the first quartile beyond 1999*. The benchmark, however, remains the benchmark year after year. Why risk a secure benchmark return for the unlikely chance of picking a winning fund that probably won’t stay a winner for very long?

* The New Investment Frontier, Second Edition (2003)

Sponsored by Barclays Global Investors Canada Limited Contact Howard Atkinson at howard.atkinson@barclaysglobal.com

Commissions, management fees and expenses all may be associated with Exchange Traded Funds. Please read the relevant prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. BGI’s ETFs, other than iUnits, are not qualified for distribution to the public in Canada as no prospectus has been filed for such funds with Canadian securities regulators.