Will you still love us tomorrow?
We’ve been on the scene for nine years now, but something has changed. And we hate to say it, but it might be you – or some of you. Lately we’ve been looking good and as a result, we’re definitely seeing more action. What we wonder is whether it’s the right kind of action. Does everyone want a long-term relationship with us or is it just a fling? We understand what relationships are like at first. Everything is rosy to start and you like everything about us. It’s easy to get caught up in the excitement of it all and believe it will be smooth sailing into eternity.
But what happens when it suddenly isn’t? Without warning, our jokes don’t seem funny anymore and our performance – well it certainly isn’t as good as it was when we first started the relationship. Doubt creeps into your mind and you question if you were in it just for the performance. Quickly you lose sight of why you really liked us, or maybe you never did. You just wanted to see what all the fuss was about.
Thinking back on past affairs, we’ve come to the conclusion that there are five ways people behave in relationships:
The walk of shame
What do one-night stands and short-term relationships cost you? Well, here’s one chart that says it all. Over a 20-year period, the average investor consistently lags the returns of every major asset class.
20-year annualized returns by asset class (1995–2016)
Source: Bloomberg LP. S&P 500 Index return is a total return which includes reinvestment of dividends. Gold: Bloomberg Gold Spot Price per Troy Ounce; Homes: S&P/Case Shiller U.S. Home Price Index; Bonds: Bloomberg Barclays U.S. Aggregate Bond Index; Oil: Bloomberg WTI Cushing Crude. Average investor return based on analysis by DALBAR, Inc., (Quantitative Analysis of Investor Behaviour, 2016) using asset allocation funds, which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behaviour. Asset allocation funds are U.S. funds that seek high total return by investing in a mix of equities, fixed-income securities and money market instruments. Money-weighted returns represent the client's personal rate of return taking into account the client's decisions regarding the timing and magnitude of cash flows in and out of the portfolio. Inflation: U.S. Consumer Price Index. All returns annualized and in US$.
The chart above is probably the most used in our business. We’d love to never use it again but that won’t happen until this damaging behaviour stops. Face it, as tempting as they are, short-term relationships aren’t all they’re cracked up to be. Just look at how the returns of investors in the Vanguard 500 Index Fund were negatively impacted by emotions and short-term thinking. Below are the fund’s 10-year annualized returns compared to its investors.
Vanguard 500 Index Fund Investor Class (VFINX) 10-year annualized returns
December 31, 2007 to December 31, 2017
Source: Morningstar Direct
You’d hope investors would experience similar returns to their funds. But in this case they did much worse, gaining less than half of the low-cost ETF.
Find a way to our heart
We want it all. We’re looking for long-term relationships because we’re well past the stage where flings are appealing. We get it, it isn’t easy. We won’t always look this good. You need to understand that. We’re prepared to be dedicated to you, will you do the same? Ask yourself this: if our performance isn’t as good as it once was, will you stay committed to us or will your eyes wander? There will be rocky times, trust us. Just look at EdgePoint Global Portfolio’s largest drawdowns.
Largest price declines for EdgePoint Global Portfolio
November 17, 2008 to December 31, 2017
Investment results based on Series A performance history for EdgePoint Global Portfolio. Total returns in C$.
There were some really tough times and we got a glimpse of them again recently when volatility shook markets at the beginning of February resulting in a drawdown of -6.3% in our Global Portfolio*. Will you be by our side as we go through them again? It might help to know we’ve experienced mutually beneficial relationships with those who have stood by us in the past and we’ll always do our best to make sure that happens in the future.
Don’t worry, we don’t expect you to do this alone. We highly recommend third-party advice to help navigate your relationship woes. A financial advisor can help you stick to your long-term goals by holding your hand through uncertain and uncomfortable periods. They understand what you’re trying to achieve and work with you to get you there. Asking for help is a sign of strength, not weakness. Not to mention, the Investment Funds Institute of Canada compared advised households with non-advised households and found the former had significantly higher assets, saved twice as much and enjoyed stronger long-term investment performance.†
True love waits
We’re happy to report that thus far the numbers suggest we’ve attracted a lot of serial monogamists. The five-year money-weighted return for the average EdgePoint investor is 16.63%‡. This means we believe our average investor isn’t falling victim to the common relationship mistakes that many do. Having long-term goals and someone to chaperone you along the way helps keep you from experiencing short-term failures.
Despite there being evidence for optimism, we still worry some of the attention we’re getting is for the wrong reasons. We’ll have down periods; make no mistake so think twice about whether you want to be in this relationship. We’re looking for partners willing to stick by us through the ups and downs that come with a long-term relationship because we believe in the long run, we’ll make each other very happy.
The following indexes were referenced in this article:
The S&P 500 Index is a broad-based market-capitalization-weighted index of 500 of the largest and most widely held U.S. stocks.
Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index of some of the most widely traded investment-grade U.S. bonds.
The Vanguard 500 Index Fund Investor Shares (VFINX) is an exchange-traded fund that aims to track the performance of the S&P 500 Index.
Annualized returns for Series A of each of our Portfolios as at December 31, 2017:
EdgePoint Global Portfolio, Series A
YTD: 16.68%; 1-year: 16.68%; 3-year: 14.24%; 5-year: 20.67%; since inception: 17.13%
EdgePoint Canadian Portfolio, Series A
YTD: 9.53%; 1-year: 9.53%; 3-year: 9.00%; 5-year: 12.33%; since inception: 13.97%
EdgePoint Global Growth & Income Portfolio, Series A
YTD: 12.10%; 1-year: 12.10%; 3-year: 10.87%; 5-year: 15.50%; since inception: 13.86%
EdgePoint Canadian Growth & Income Portfolio, Series A
YTD: 8.07%; 1-year: 8.07%; 3-year: 7.66%; 5-year: 10.56%; since inception: 11.71%
†Jon Cockerline, “New Evidence on the Value of Financial Advice,” The Investment Funds Institute of Canada, November 2012, https://www.ific.ca/wp-content/uploads/2013/08/New-Evidence-on-the-Value-of-Financial-Advice-November-2012.pdf/1653/.
‡Average EdgePoint investor returns: CIBC Mellon, average EdgePoint investor returns are the average money-weighted returns net of fees across investors who held EdgePoint Portfolios from December 31, 2012 to December 31, 2017. Money-weighted returns represent the client's personal rate of return taking into account the client's decisions regarding the timing and magnitude of cash flows in and out of the portfolio.