May 242016
 

People (mostly bloggers) write and talk about how mutual funds are basically scams but they rarely show proof. Well I finally found some. I present to you the story of TD Global Asset Allocation Fund, TBD158.

Part 1 – Fund Inception

TD Global Asset Allocation Fund was created on January 13, 1998 as noted on this snapshot of the TD website from Nov 1, 2001. The fund’s objective was to maximize long term capital growth by actively trading futures contracts in the global market. If you wanted in on this groundbreaking fund you paid heavily with a MER of 2.95%. The fund also had the power to enter and exit geographic regions at the manager’s discretion, thereby giving him a lot of power over the $210 million worth of assets in the fund. That’s a lot control for one guy and clearly it didn’t go well in the early years:

1999 did okay, but massive losses followed in the two subsequent years. Blame the Y2K bug! Source

The managers blamed the latest losses partly on global uncertainty after the 9/11 terrorist attacks. That might explain losing 9% in 3 months but what about the other -7% that year? and -5% in 2000? Ok the dot com crash had started in 2001 but the fund was still below its benchmark.

Let’s jump ahead to 2006:

The dot com crash is responsible for the -21% in 2002, but look how small the gains were in subsequent years!! Investors definitely noticed and started cashing out, the total assets had then dropped to $76 million. That’s a 64% drop since inception. On the plus side it hit 0.8% since inception. Then you’d only be losing -27% to inflation over the nine years of the fund.

Part 2 – Objective and Name Change

In December 2006 the folks at TD realized the fund was dying and something needed to be done. Their solution? Fire the manager (and by fire, I mean promote, because he manages multiple funds now) and turn the fund into a portfolio fund that holds other mutual funds. Forget all that risky futures trading! Hopefully performance of five other managers will result in some sweet gains. To avoid confusion they changed the name from “TD Global Asset Allocation Fund” to “TD Global Equity Advantage Portfolio”. Now lets jump ahead to 2008 and see how things changed:

TD GAA 4

Well that didn’t work. Source

No improvement. Granted the funds are starting to fall because of the 2008 crash. But even the 1 year -14% drop doesn’t explain the total assets dropping to $58 million. Let’s jump ahead to a graphical summary of the funds performance:

10 yr growth

Would you invest with a performance like this? Source

Maybe this objective and name change didn’t work. Wait, what if we slightly changed the name again! Including “Advantage” in the name was clearly misleading, how about just “TD Global Equity Portfolio”. To be fair they changed the names of a handful of their mutual funds to “improve clarity and better reflect the mandates of the funds”.

Part 3 – Death

I could find no record of the fund after 2013. And no statement from TD about it closing, it just disappeared as the funds normally do. The last statement included data up to May 24, 2013:

The fund performed decently over the past few years especially with 14.3% in six months, but it’s still nothing compared to the rest of the stock market with their 30% yearly gains after the 2008 crash. HOWEVER, the yield since inception remains in the NEGATIVE. That’s negative performance over fifteen years! Or to put it another way, -45% in currency devaluation from inflation. I can only assume that giant negative sign is why the fund ended with only $31 million.

This is How Survivor Bias Works

Imagine if mutual fund companies never closed funds. Investors would never willingly give their money over if most of the available funds had near zero returns. The natural business move for them is to remove those funds and hope no one finds them. Therefore the investor only sees funds that don’t get closed and this is what we call SURVIVOR BIAS. You only see the funds that survive, leading you to believe that all their funds are winners.

I was invested in an ETF that closed, they aren’t immune. The company liquidated the holdings and I noticed a cash infusion in my account. Unfortunately it was about 15% less than my original investment. Luckily I found a similar fund and reinvested what remained from my losses.

There you have it. If you want to do some hunting yourself, make your way to the Wayback Machine.

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