Contact: Judy Culford

October, 1995

Phone: (519) 663-2252

Mutual Fund Returns Not What You Think

Your favourite mutual fund performance table indicates that the average rate of return over the past five years for Canadian equity funds is 9.4%. So that means, that over the last five years, the average performance in Canadian equity funds was 9.4%, right? "Wrong," says Talbot Stevens, financial speaker and author of Financial Freedom Without Sacrifice.

"In the case of equity mutual funds, the performance for the average investor has actually been between 1.2% to 3.2% higher than reported in mutual fund performance tables," Stevens says.

Mutual fund reports like those in the Globe & Mail and Financial Post list the average return in various categories of mutual funds. However, this figure is not representative of the average return of the typical investor. While the averages listed in the tables are not incorrect, they are misleading because they are not weighted averages.

To illustrate the difference, consider a simple example with two mutual funds. Fund A has 10 million dollars with an average return of 5%. Fund B has 100 million dollars with an average return of 15%. The unweighted average, the type used in fund performance tables, is the average of 5% and 15%, which of course is 10%.

In other words, all funds are weighted equally, regardless of size. The actual weighted average is 14.1%, which recognizes that the majority of the total funds, 100 million of the total 110 million, averaged 15%. Thus, an asset weighted average is the truest indication of the typical investor's returns.

Stevens found that the asset weighted average for the five year return on Canadian equity funds was 10.6%, 1.2% higher than the 9.4% unweighted average listed in the Globe & Mail for the period ending August 31, 1995. The discrepancy is even larger with the 10 year returns of international equity funds, where the weighted average was 13.3% versus 10.1% listed in the tables, a difference of over 3%. This is because the largest funds have performed very well, while some of the smaller funds haven't.

The bottom line is, as with any statistic, we must be careful to interpret properly. "Being aware of the true averages is obviously important when deciding whether or not to invest in mutual funds versus GICs, for example," says Stevens.

Weighted Vs. Unweighted Average Returns
Fund Category Unweighted Average (%) Weighted Average (%) Difference (%)
Canadian Equity (5 yr) 9.4 10.6 1.2
American Equity (10 yr) 11.3 12.5 1.2
International Equity (10 yr) 10.1 13.3 3.2
* for period ending August 31, 1995

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing