Peculiar_Investor wrote: check out the MERs for the funds found. In the current low interest rate environment, the MERs are going to kill future investors.
Perhaps, perhaps not. It all depends what the fund holds, it's average YTM and its duration. When you factor in that an ETF such as XBB must hold ~50% in federal debt, the increased MERs of an actively managed fund may well be worth it if the manager has tilted the portfolio to take advantage of the risk premia that is being afforded corporate/provincial/municipal credits.
The simple truth is that if you are unable or unwilling to roll your own, you only have so many alternatives. XBB will give the current buyer 2.6% annually going forward over the next 8+ years; GICs look pretty good in comparison. If I must own a bond fund, I'd much rather pony up the extra MER for PH&N than ride the ETF train.
Secondly, I'm surprised there was no mention that we've just come through a great bond rally, so definitely past performance is no indication of future results. The benchmark numbers are not even quoted, nor is a comparison to something like the
iShares XBB (Management Fee of 0.30 BTW). I predict that in one to three years the follow-up article may appear blaming poor performance of these choices on the low interest rate environment and the high MERs.
Yes, we are in the midst of a bond rally that has gone on for 30 years now. Many pundits have predicted the end of the bond bull for the better part of 10 years, if not longer. As a result of the credit crisis, we are deleveraging globally. This started in 2008 and will take quite some time to work its way through; 10 years is not unrealistic. Granted, public entities are increasing their use of debt, but not at a rate to soak up all the slack of private balance sheets contracting. Until the creditors are more interested in spending than they are in lending, we are going to be faced with an imbalance of credit supply versus demand. You can't get materially higher rates of interest in that sort of credit environment. Essentially you are looking at the Japan scenario, but on a more global basis. Despite the fact that nominal rates remain low, the real rates of return for fixed income in the near term will continue to be better than people realize. Depending on portfolio construction, it could be more than adequate to off-set the increased fees from active management.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830