Blog: Cutting Through the Noise

Simply ComplexPrint

Posted on July 27, 2011

By Scott Ronalds

I was reviewing a new client’s portfolio last week and I stumbled across the Manulife Simplicity Balanced Portfolio. It’s a fund-of-funds product, meaning it holds a basket of mutual funds. In this case, the Portfolio holds 18 funds (as of December 31, 2010), which are managed by 13 different firms (manager in parentheses):

  • Manulife Canadian Large Cap Value Equity Fund (MFC Global)
  • Manulife Canadian Bond Fund (MFC Global)
  • Manulife Canadian Universe Bond Fund (CIBC Global)
  • Manulife Canadian Fixed Income Fund (Addenda Capital)
  • Manulife International Equity Fund (Templeton)
  • Manulife Mawer World Investment Class (Mawer Investment Mgmt.)
  • Manulife Mortgage Backed Fund (MFC Global)
  • Manulife Canadian Large Cap Equity Growth Fund (McLean Budden)
  • Manulife Fixed Income Plus Fund (Alliance Bernstein)
  • Manulife U.S. Equity Fund (Alliance Bernstein)
  • Manulife Small Cap Value Fund (Foyston, Gordon & Payne)
  • Manulife Global Equity Fund (Capital Guardian)
  • Manulife Growth Opportunities Fund (MFC Global)
  • Manulife U.S. Small Mid-Cap Equity Fund (Goldman Sachs)
  • Manulife U.S. Diversified Growth Fund (Wellington)
  • Manulife Canadian Equity Value Fund (Scheer Rowlett & Assoc.)
  • Manulife Canadian Equity Fund (MFC Global)
  • Manulife Canadian Large Cap Growth Fund (Greystone)

The fee on the product is 2.59% (3.13% for the segregated version). While the managers are reputable and experienced, there are nonetheless 13 cooks in the kitchen. I haven’t done the math, but I’m guessing there are well over a thousand stocks in the Portfolio, likely with a fair degree of overlap between managers. Over-diversification is a real danger here. No matter how much statistical analysis is done, with seven Canadian equity funds, six foreign equity funds and five fixed income funds, it’s difficult for products like this to not just be very expensive index funds.

This doesn’t look like a simple dish to me. Maybe that’s why it comes at a premium price.