Lipper Fund Awards -- Step right up, Everyone's a winner!
Posted: April 04, 2008, 1:35 PM by Jonathan_Chevreau
ETFs, MERs, Index Funds, Mutual Funds
So you’re in the market for a mutual fund and notice Fund Company X has won a bunch of awards. Should you buy one of the winning funds? Depends on who’s giving the award. If it’s a Lipper award, I’d be skeptical.
The premier tribute to actively managed mutual funds in Canada is the Canadian Investment Awards or CIA, which takes place every fall. Over the years, the number of categories has risen to a ridiculous extent, which has the effect of diluting the impact for the few deserving funds.
But you’ve not experienced true award inflation until you see what the marketing wizards at Lipper have done. Lipper — a wholly-owned subsidiary of Reuters — held its second annual “gala” awards in Toronto this week.
Lipper unveiled a total of 113 awards by my count. They accomplished this dubious feat by breaking the award winners into four groups: those with the best 1-year, 3-year, 5-year and 10-year performance. So while there are about 31 basic categories — ridiculous in itself — this gambit lets Lipper declare four different winners in each category, thereby spreading the wealth around.
Thus, if you want to buy an award-winning Canadian equity fund, which one you choose will depend on what performance track record you think is important. If you’re so deluded that you think the last 1-year performance record is the most accurate predictor of future returns, then you’ll go for the IA Canadian Leaders Fund, winner of Lipper’s 1-year Canadian Equity award.
Ah, but if three-year returns are your bag, you’ll buy instead the Desjardins Environment Fund. Or perhaps the 5-year track record would be more prudent? If so, then you’ll want the AltaFund Investment Corp., winner of Lipper’s 5-year Canadian Equity award.
But why stop there? Go for the 10-year winner, which is the Fidelity True North Fund.
Not to sugarcoat the situation but this is financial pornography at its most blatant. Heaven help the poor consumer who opens up his daily paper to find four different vendors proclaiming themselves the winner of Lipper’s “prestigious” 2008 Canadian equity award.
And so it goes for the usual categories, such as U.S. equity, Japanese equity, high yield fixed income and on and on.
But wait, there’s more, as the hucksters say. If your favorite fund company can’t squeak in a winner through the aforementioned free-for-all, maybe they can win the “Miscellaneous” award, also spread over 1, 3, 5 and 10 years.
So if you like to invest in stock exchanges over 1-year periods, the Caldwell Exchange Fund is the 1-year miscellaneous winner. Move to three years and the “miscellaneous” winner is the TD Latin American Growth Fund, which also wins in the 5-year category; for 10 years it’s the AGF China Focus Fund. Wow, TD won in two of the four categories: better stock up on it now. Gives new meaning to the term "Latin lover."
It gets worse. On Thursday, the Toronto Star ran a ten-page advertorial supplement which featured the following banner headline: “Spotlight shines on RBC Asset Management.” Beneath it was another unbylined story headlined “Lipper Fund Award Winners from A to Z.”
As already noted, there aren’t enough letters in the alphabet to cover all the Lipper awards. The supplement appears to be a raging success for the ad sales people: full-page ads were purchased by Mackenzie Financial, AIM Trimark, Manulife Investments and Dynamic Funds, with smaller ads from other industry players (or is it “payers?”).
Naturally, all the winners flooded journalists’ inboxes yesterday with breath-taking emails announcing their award-winning funds. Dynamic claims to have “stolen the show” by winning the “greatest number of Fund of the Year” awards, with 19, count ‘em, 19 awards.
Of course, that’s counting the four-fold inflation factor of spreading the awards over the four performance time periods. Thus, Dynamic was able to tout its Dynamic Power Global Growth Class as the 1-year Global Equity category winner as well as the 3-year and 5-year winner. Alas, the pattern was broken by the 10-year winner though it was still in the family: Dynamic Global Value Fund.
Not to be outdone in the press release wars, RBC Asset Management announced that for the “second consecutive year” it was named “Best Overall Fund Group” in Canada. It then explained how it had received Lipper awards “over various time periods” in various categories.
Compared to Dynamic’s winning 19, you’d think CIBC Asset Management would want to hide the fact it won only four of the 113 awards available. And AGF Funds didn’t even blush when it issued its release saying it was “honored with two top prizes.” Nor did AIM Trimark, which also won two.
Investors Group kept the precise number vague, saying it had “been recognized for industry-leading fund performance” at the “prestigious Lipper Fund Awards ceremony.” Fidelity Canada said it is “very honoured to be recognized” for its seven fund winners and so on.
Go here and if you can navigate your way to the Canadian-specific data you can get a list of the rest of the winners. If you’re a fund company marketing executive, don’t forget to go to the “Certificates” section which lets you “share the good news about your fund’s achievement.”
Lipper makes it easy for you to “use your certificate and award log in your marketing communications to promote your success throughout the year.”
Yep, it’s all about marketing. But the final touch is the award trophies, which Lipper describes as “an instantly recognisable symbol of fund performance and success.”
Now I don’t know about you but when most of us see all those Hollywood actors and actresses clutching their Oscars on TV, don’t we kind of assume they’ve been given the statuettes?
Lipper’s web site is selling fund companies award trophies so they can “order as many replica trophies as they need, to display in offices around the world.” In addition, you can order a trophy for “awards not catered for at an Awards evening.”
So even if you’re such a sad-sack fund company that you couldn’t muster up a single win in the 113 categories, there may yet be hope for you. You can order a large Lipper trophy for just $155, a medium one for $119 or a small one for just $95.
Manufacturers of index funds or ETFs need not apply.
Comment:
From KCM's Adrian Mastracci: Liked your Lipper blog.
Let's put it this way. Say there are 9,000 funds in Canada of which 113 got the trophy.
That means about 1 1/4% of them are winners and about 98 3/4% of them are in the non-winner category.
So given the propensity for investors to load up on winners vs non-winners, they now have nearly a 100% chance of picking the laggards for their future returns.
I assume that history repeats itself most times where the current winners have a difficult time staying on top of the perch over the next few years!
Nothing has changed in investing. The same gaffes are repeated, over and over.
Adrian Mastracci
Portfolio Manager, R.F.P.,
