Scout Investments Value Proposition

A better approach to investing -

We focus on what is in the best interest of our clients.

We focus on providing a holistic wealth management approach customized to your unique and ever changing situation.

We focus on clear, accurate and timely communication including full disclosure around fees.

We focus on aligning our interests with low, performance based fees.

We focus on diversification, a fundamental approach to active investment management, and investing only in high-quality companies.

We focus on avoiding mistakes, avoiding overvalued securities, and avoiding overvalued markets.

We focus on lowering taxes through structuring your affairs between taxable and non-taxable accounts and implementation of low turnover, low tax strategies.

We focus on sharing our passion for investing with our clients.         

How does Scout Investments offer a better approach to wealth management?

1.     We have a legal and ethical obligation to put the best interest of our clients above our own.  The reality is that Canada lags the world in terms of investor protection and your current advisor has a duty to his employer, not you.  This is great for the profitability of banks and insurance companies in Canada, but for investors it means a lot less money for your investment goals.

2.     We care about our clients and genuinely want to help them with straightforward investment solutions and with great service.  With the help of our partners we offer our clients savings across investments, mortgages, and insurance with a single point of contact. 

3.     Canada has the highest mutual fund fees in the world and lower fees are proven to be the single most effective way improves the performance of your investments.  With traditional mutual funds you will need to save twice as much or work 10 years longer, on average, to ensure the same retirement income as our low cost investment alternatives.

4.     Our investments are more tax efficient than mutual funds.  Our low fees are also tax deductible and we will structure your affairs efficiently between taxable and non-taxable accounts.  All of our investment strategies are low turnover and low tax.  We keep trading cost down and taxes down in order to keep more money for our clients.

Does your financial advisor, broker, or mutual fund sales person, do all that?  Call to schedule a free 20-minute consultation today.

Scout Investments offer comprehensive investment, insurance, and mortgage solutions at the lowest cost to our clients. 

kevin@scoutinvestment.ca                          

www.scoutinvestments.ca                                             

1-800-795-6701

Passive Management Issues

Index Funds Issues

Passive management (also called indexing) is a portfolio management strategy based on purchasing exactly the same stocks and bonds, in the same proportions, as an index.  The idea is that the average investor will benefit more from reducing investment costs than from trying to beat the average. Index fund performance can differ from the performance of the index that are trying to replicate for a number of operational reasons, in addition to management fees.  A Morningstar survey found an average tracking error of 38 basis points across all index funds.

As passive management, index funds, and ETF’s grow in popularity grow the distinction between active and passive management is become much less clear.  These specialized funds and closet active manager’s offer specialize products sold as “index funds” or “ETFs” to capitalize on popularity of these investment vehicles and charge still higher management fees.  Despite the fact that index funds generally offer a greatly reduced cost to mutual funds, index funds come in many different fees and it important to understand what you are paying. 

Fees on index funds can still be substantial for investors with large portfolios, especially considering the length of time an investor anticipates holding an index, and how cheap it is to buy and sell stocks individually. 

A major issue with traditional capitalization weighted indexes is portfolio construction.  Traditional capitalization weighting, by definition, gives additional weight to stocks that are currently overpriced relative to their fair value and reduced weights in stocks that are currently trading below that true value.  The mismatch of buying too many overvalued shares and too few undervalued shares leads to performance drag in cap weighted index funds.

As index funds have grown in popularity and now account for a large portion (~30%) of the market, the rebalancing of an index can impact the stock price of the impacted companies.  A company being added can have a demand shock leading to a price increase, and a company being deleted can have a supply shock, leading to a price decrease.  Increasingly, short term traders anticipate these moves and trade ahead of these stock price moves.   This results in profits transferred from index fund investors to short term traders, estimated to be at least 21 to 28 basis points annually for S&P 500 index funds, and at least 38 to 77 basis points per year for Russell 2000 funds.

The fact remains that some managers outperform passively managed portfolios over long periods of time.  These manager can avoid some market segments are less efficient in creating profitable investments.  Skillful investment managers can avoid overvalued securities and overvalued markets. In addition, a skillful manager can also reduce volatility by investing in less-risky, high-quality companies rather than in the market as a whole.

Despite the surge in popularity of index funds, these investment vehicles may offer lower costs (lower investment fees and transaction costs), but index funds are far from perfect.

Scout Investments offer comprehensive investment, insurance, and mortgage solutions at the lowest cost to our clients. 

kevin@scoutinvestment.ca          www.scoutinvestments.ca              1-800-795-6701

Passive Management

Passive management (also called indexing) is a portfolio management strategy based on purchasing exactly the same stocks and bonds, in the same proportions, as an index.  Indexing doesn't entail any forecasting, and any use of market timing or stock picking would not qualify as passive management.

The idea is to minimize investing fees and to avoid investment mistakes.  The most popular method is to mimic the performance of a specific index.  By tracking an index, an investment portfolio typically gets diversification, low turnover, and low management fees.

Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming more common in other investment types, including bonds.

The rationale behind indexing stems from a simple concept:

In the long term, the average investor will have an average before-costs performance equal to the market average. Therefore the average investor will benefit more from reducing investment costs than from trying to beat the average.

However, some active managers beat the index in particular years, or even consistently over a series of years.  

In theory, portfolio managers don’t make decisions about which components to buy and sell. At the simplest, an index fund is implemented by purchasing securities in the same proportion as in the stock market index.  However, portfolio manager can also use sampling techniques (e.g. buying stocks of each kind and sector in the index but not necessarily some of each individual stock), and there are sophisticated versions of sampling (e.g. those that seek to buy those particular shares that have the best chance of good performance).

As passive management, index funds, and ETF’s grow in popularity grow the distinction between active and passive management is become much less clear.  For example, some index funds and ETF’s use sophisticated sampling techniques which is technically active management.  In addition, some index funds and ETF’s focus on narrow sectors of the market and do not tract the broad market.  These specialised funds (closet active managers) offer specialise products marketed as “index funds” or “ETFs” to capitalize on popularity of these investment vehicles and justify higher management fees.

Scout Investments offer comprehensive investment, insurance, and mortgage solutions at the lowest cost to our clients. 

kevin@scoutinvestment.ca                         

www.scoutinvestments.ca                                            

1-800-795-6701