Your Complete Guide to Index Investing with Dan Bortolotti

The Couch Potato Mutual Fund is Here At Last

2017-12-02T23:18:14+00:00April 1st, 2014|Categories: Index funds, New products|Tags: |61 Comments

[Note: This was an April Fool’s joke!]

One of the perennial problems with ETFs is they require you to open a discount brokerage account and learn to trade individual securities. That can be intimidating, especially for those who are accustomed to buying mutual funds.

For several years now, I’ve been investigating ways to bring the Couch Potato portfolios to more investors, including the millions of Canadians who aren’t comfortable with ETFs. So I’m excited to unveil the Complete Couch Potato Balanced Fund, a traditional mutual fund that will launch later this month.

Creating a new mutual fund is far more difficult than many people realize, and I could never have done it on my own. That’s why I decided to partner with a large, well-known investment firm based in Winnipeg. (I’m not yet at liberty to disclose its name because the final prospectus is being translated into French.) This firm’s capable sales force will make sure advisors across Canada sell the funds to clients even if they don’t understand the strategy.

An enhanced strategy

The new fund is based on the Complete Couch Potato in my model portfolios, but there will be some subtle differences. It will be managed by Rich Laggard, who was previously at the helm of several Morningstar five-star funds. Rather than setting long-term strategic targets and rebalancing once or twice a year, Laggard will have some discretion. For example, because interest rates are certain to rise over the next few years, the manager may decide to dramatically underweight bonds, which are currently more risky than stocks and are guaranteed to lose money. He may also decide to get out of certain asset classes altogether if technical screens show negative momentum.

I can already hear the criticism from many long-time readers. I’ve always argued that market timing and economic forecasts are not likely to improve returns. However, anyone who wants to simply buy a few ETFs and rebalance them annually can already do that on their own. With this new fund, our goal is to create something that sounds more sophisticated, even if there is no evidence it will work. The enhanced strategies will also give the fund a higher yield.

Securities law prevent me from speculating about the future returns of the fund, but suffice it to say they are expected to be awesome. This project has been in the works for well over a year, and we did extensive data mining until we were sure our hypothetical results would look impressive—and they do. The marketing department has already created several colourful graphs, and all of the lines slope toward the top right corner.

Your choice of fee structure

Our goal was to keep the fund’s MER as low as possible, and we have done that. But we’ve added some enhancements here, too. The underlying ETFs have an annual cost of 0.23%, and we’ve augmented this with an additional 117 basis points in management fees, to bring the total to 1.40% for the F-series version, which is available only through fee-only advisors.

The A-series will be sold by commission-based mutual fund reps at all of the major banks and investment firms. It will carry a management fee 1.40%, as well as a 1% trailing commission paid to the advisor. Investors will have their choice of a 5% front-end load, a deferred sales charge starting at 7%, or a combination of both. We’re confident that by obscuring the true cost of the fund we’ll be giving investors exactly what they want.

For more information, I welcome you to contact April, the new fund’s director of marketing. She can be reached at afool@infestorsgroup.ca.