Pay attention to fund mergers

With so many fund mergers taking place, it’s important to keep a close watch on what’s happening with any funds you own. In some cases, you could end up owning units in a fund that doesn’t fit your plan at all, or paying higher expenses than before. By law, you must receive an information circular from the fund company informing you of planned changes and giving you an opportunity to vote on them. Most people chuck out these weighty- looking documents, fail to exercise their proxy, and allow the merger to go through by default. That could be to your detriment.

For example, let’s look at a couple of recent mergers in the Dynamic family that went through in late November. The first involved folding the Dynamic Global Income & Growth Fund into the Dynamic Global Partners Fund. If you were a unitholder in the Income & Growth Fund, the result was to move you from a foreign bond fund to a balanced fund, and to hit you with a much higher management expense ratio in the process (2.35% for Income & Growth vs. 2.86% for Partners). If you really wanted a foreign bond fund, this is not a good move for you and you should consider switching your money elsewhere (although Dynamic longer offers a foreign bond option).

The second merger folded the Dynamic Power Canadian Fund into the Dynamic Power Canadian Growth Fund. In this case, there was no change in mandate and both funds had the same manager. Also, if you hold units in the Growth fund, you get an immediate break on the MER, which is now capped at 2.25% (it was 2.61%). That could be offset in the future, however, by a new performance fee which may add as much as three percentage points to the management cost if the fund outperforms the benchmark TSE 300 Index by more than 10%.

So the next time you get an information circular announcing a planned merger, read it. If you don’t like the proposal for your units, return your proxy with a “No” vote. These things do get defeated on occasion, so stick up for your best interests.

Mutual Funds Update is a monthly newsletter edited and published by Gordon Pape. For a free three-month trial subscription to the electronic edition, go to http://gordonpape.fifty-