Q&A: Institutional Funds

Do institutional funds really offer better returns for lower risk? A reader wants to know


Q – I recently met with an investment adviser from a big bank. After reviewing my portfolio I was told I should upgrade my mutual funds to level II, i.e. institutional funds, as this will provide better returns with reduced risk through re-balancing process and so on.  But these funds are not accessible by average retail investors so if I want to have this “better return and lower risk” financial product I would need to transfer my portfolio to him.

I would like to know what is the real difference between the regular mutual funds and the institutional ones. Even the MER is not lower than some of the retail mutual funds, such as Mawer. Do you see any advantage? How do I find out any more information about it myself before I decide what to do next?  Thank you so much for your invaluable advice. – Mandi W.

A – Institutional funds are normally available only to high net worth investors and institutions such as pension funds. Their MERs are significantly lower than comparable retail mutual funds from the same family, but may not be lower than those from boutique houses like Mawer and Steadyhand.

Ask the adviser for proof that following his suggestion will likely result in a better bottom line return for you (nothing can be guaranteed, of course). This can be done by determining the actual return on your own portfolio over the past three years and comparing it with the pro forma result from the recommended portfolio. Also ask about costs. Will the adviser charge a fee for his services and, if so, how much? You might also want to compare the results of a portfolio invested in, say, Mawer funds before making up your mind.

Researching information on institutional funds on your own may be difficult because they are often not made available to the general public. Ask the adviser whether the units he is recommending can be found on Globefund, Morningstar, or Fund Library. – G.P.



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