Michael Nairne in the Financial Post reports that a recent Morningstar study demonstrates that the best predictor of a fund’s performance is not prior returns but the fund’s expense ratio. Cheaper funds beat the competitors in every asset class and in every time period.
Such findings highlight to investors the need to have clear disclosure of all fees and costs in the cost and performance reporting requirements under CRM as well as the need for the point of sale Fund Facts (FF) document to be provided to investors prior to or at the point of sale rather than afterwards. It also reinforces the need for stronger language in FF on how past performance is not a useful predictor of future returns instead of the current bland statement “Like most mutual funds, this fund doesn’t have any guarantees”.
