Scudder kills no-loads
These were the original no-load, low-fee funds that the company launched when it entered the Canadian marketplace in 1995.
The plan was to replicate the U.S. success story, where Scudder has been a strong player in the no-load market for decades. The Canadian line-up was designed to compete directly with companies like Altamira, with direct telephone sales, no commissions, and management expense ratios that were among the lowest in the industry.
Unfortunately, despite decent performance numbers, Scudder funds never caught on with Canadian investors. Sales lagged and it became apparent that the company couldn’t hope to grab a major share of the no-load market without a massive expenditure on marketing.
The writing was on the wall after the Scudder family was put into an uncomfortable alliance with the load Maxxum funds under the aegis of Investors Group a couple of years ago. A new series of Scudder units were created, the Advisor class. They carried higher MERs and were sold with sales commissions through the usual mutual fund distribution channels.
The problem from Scudder’s perspective was that no knowledgeable investor would buy the more expense units as long as the original Classic series was still available. After all, why would anyone want to pay a sales commission and a higher MER for what amounts to the same fund?
The result was the inevitable death of the Classic series. Now your only option if you want Scudder funds is to pay the extra costs.
That changes the whole dynamic. The higher charges mean that the net return to investors will be significantly lower. As a result, the historic returns of the Classic units should not be seen as indicative of what the Advisor series will do.
For example, during the year 2000 the Classic units of the Scudder Canadian Bond Fund returned 9.3%, well above average for the category.. The Advisor units, by contrast, returned just 7.5%, below average for Canadian bond funds. More than half a point of that differential was accounted for by the higher MER of the Advisor series. Plus, those figures do not reflect any of the sales charges attached to Advisor units.
It’s the same story elsewhere in the family. The Classic units of the Scudder Canadian Equity Fund returned 6.7% in 2000. The Advisor units gained 5.8%. In this case, the difference was entirely attributable to the higher MER of the Advisor series – 2.66% vs. 1.60%.
The message is that the Scudder funds need to be completely reassessed by investors in the light of this significant development. They are no longer the excellent value they once were. Now they’re just another family of load funds and you should make your decisions on that basis.
By the way, if you currently own Classic units you have the choice of holding them, redeeming them, or transferring them to the Advisor series. Under no circumstances should you choose the last option. All you’ll do is increase your MER and reduce your return.
Adapted from the March 2001 edition of Mutual Funds Update, a monthly newsletter edited and published by Gordon Pape. Get a free three-month e-subscription!