I’m A Guilty IGM Shareholder



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The Dividend Guy is rightfully scolding IGM’s Investors Dividend fund for milking $291,117,000 a year in mutual fund fees. I’m both proud and guilty of being an IGM Financial shareholder. I’m proud because IGM has been steadily increasing revenues, profit margins, earnings and dividends, while maintaining Return on Invested Equity above 20%, and decreasing debt levels. I’m guilty because the prosperity rides on the backs of investors’ ignorance. Let’s face it. By analyzing Investors Dividend’s top holdings, one can easily conclude that the Investors Dividend fund is nothing more than a closet index fund with a tilt toward dividend paying stocks. Even an amateur like myself can assemble an index look-alike portfolio. Heck, pay me 1/100th of $291,117,000, and odds are favouring me to beat this fund over the long-term.

Not only is the Investors Dividend the largest mutual fund in Canada, the MER is also a whopping 2.88%. So much for economies of scale. To appreciate just how much investors are forgoing with the MER, let’s compare the performances between Investors Dividend and the TSX total return. The 5-year compounded returns are 9.71% and 12.43% respectively, or a difference of 2.72%. Peculiarly similar to the MER, the point is investors are better off buying cheap index funds and ETFs, rather than enriching IGM Financial with a jumbo MER for inferior performances.

Investors Group

Here is a totally unoriginal idea. :) Don’t buy this mutual fund. Buy the company that operates the fund. Buy IGM Financial. At 400 shares, this position is spoiling me with $684 worth of dividends per year, and this money is coming out of the $291,117,000 pot. I’m a guilty IGM shareholder, and you can give me some virtual spanking.

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Reader Comments

Comment Number:
1
Written by:
MillionDollarJourney.com
Posted on:
May 17, 2007 at 6:34 pm

I too am guilty as I own PWF which is a parent company of IGM. As long as they keep increasing their dividend, i’m happy. :)

FT

Comment Number:
2
Written by:
Mike
Posted on:
May 18, 2007 at 12:00 am

Is it investor ignorance? Or do people just pay more for convenience. Let’s face it a lot of people don’t want to bother learning about investments and shopping around for mutual funds. Some people pay for house cleaning, grass mowing, car washing etc. It’s all about convenience.

My point is, don’t feel guilty!

Comment Number:
3
Written by:
Stefan
Posted on:
May 18, 2007 at 12:46 am

I’m happy, too. I own POW, which is a parent company of PWF :)

Comment Number:
4
Written by:
thefinancialblogger.com
Posted on:
May 18, 2007 at 11:25 am

I think that most people don’t know how to manage their portfolio. Therefore, they need a financial consultant to help them out. I guess you pay of the financial advices through those high MER’s. Don’t feel guilty about it, most investors would just loose all their money if they would be left alone in the market!

Comment Number:
5
Written by:
moneygardener (AKA investor99)
Posted on:
May 18, 2007 at 12:47 pm

I agree with all of these comments, and I too hold IGM.

Comment Number:
6
Written by:
ThickenMyWallet
Posted on:
May 18, 2007 at 9:44 pm

Great post. What I can never understand is that most people buy mutual funds through dollar cost averaging when, with the same amount of money, you can do a share subscription program on high yield dividend stocks like IGM.

Keep up the good (and guilt free) blogging.

Comment Number:
7
Written by:
Patch
Posted on:
March 19, 2008 at 4:38 pm

So POW owns PWF owns IGM…how do you decide which one to buy? ;)

Comment Number:
8
Written by:
Financial Jungle Guy
Posted on:
March 19, 2008 at 5:28 pm

Hi Patch - I believe PWF’s prime holding is GWO. IGM is a much smaller organization. Its market cap is only $11 billion versus GWO’s $25 billion.

According to PWF’s organization chart, PWF owns a bigger chunk of GWO. If you want IGM, I’d buy direct rather than going through PWF, especially if you prefer other life companies than GreatWest. E.g. Manulife and Sunlife.

http://powerfinancial.com/index.php?lang=eng&comp=powerfinancial&page=orgchart

Comment Number:
9
Written by:
Wade
Posted on:
January 24, 2009 at 7:12 am

I’ve been shorting IGM for awhile now, but they’re hanging in there (so I’m not making anything). I wonder if the consumer will ever catch on?