All funds have a document described as a fund fact. The fund fact gives fundamental information about the fund. It doesn’t give all necessary information, but it does give total cost.
We will have a look at RBC Canadian Equity. The fund is managed by RBC Global Asset Management, a division of Royal Bank. RBC Global Asset Management make all the investment decisions. The investment decisions are constrained by their mandate. The mandate is that it is a Canadian equity fund. The fund can invest some in companies outside of Canada, but the majority of the money managed by the fund must be invested in shares of Canadian companies.
Cost to the fund investor is described at the bottom of page 2. The section is titled “How much does it cost”. The MER is 1.89 percentage points and the TER (trading expense ratio) is .1 percentage points. Total cost is 1.99 percentage points.
Investment return information can be found here. The average annual 10-year rate of return to September 30, 2018 is 4.6%. $10,000 invested on September 30, 2008 (right before a major global 30% decline) grew to $15,679. This sounds ok. But, if total cost was 0%, the average annual 10-year rate of return would’ve been 6.59%. $10,000 invested on Sept. 30, 2008 would’ve grown to $18,930. The investment grew by $5,679 and would’ve grown by $8,930 if cost was 0%. Cost eliminated 36% of the return over 10 years. Cost matters!
Notice that as of September 30, 2018, 7.5% of the fund was invested in non-Canadian equities. This is reasonable and most Canadian equity funds do this. There are sectors that the fund manager wants exposure to that are significantly under-represented in Canada. Also notice that the fund is benchmarked against the S&P/TSX Capped Composite Index. It shouldn’t be. It should be benchmarked against a blend. Something like 92% S&P/TSX Capped Composite Index, 7% S&P 500 (US) index and 1% against an international index. This benchmark would be a more appropriate measure to judge the success or failure of the fund manager.