Rob Carrick points to the RBC Canadian Dividend Fund as an example that “shows why we need to reform the way investors pay for funds and advice.” He makes a number of excellent points about the problem of hiding the cost of advice in mutual fund MERs in the form of trailing commissions. However, I take issue with his claim that because this fund has beaten the S&P/TSX composite index over the past 5 years it “has been such a consistently good money maker.”
The Canadian S&P composite index is not the right index for judging the RBC Canadian Dividend Fund. A more appropriate index would be the Dow Jones Canada Select Dividend Index. The iShares ETF based on this index, XDV, beat the RBC Canadian Dividend Fund by 1.1% per year for the past 5 years, which is very close to the difference in their MERs.
Another possible index for comparison is the S&P/TSX Canadian Dividend Aristocrats Index. The iShares ETF based on this index, CDZ, beat the RBC Canadian Dividend Fund by 1.5% per year for the past 5 years, which is a little more than the difference in their MERs.
What has made investors money over the past 5 years is the choice to invest in dividend stocks. Among ETFs and mutual funds that focus on Canadian dividend stocks, RBC’s fund has not distinguished itself. There is no reason to believe that dividend stock outperformance will continue. If it doesn’t, then the high MER on RBC’s fund will be less palatable.