Wondering which fund is which?

Fund companies would probably pooh-pooh the idea, but I wonder if one of the reasons for the slowdown in mutual fund sales isn’t the increasing complexity of the industry. The many purchase variations are leaving some investors confused and frustrated, and prime candidates to move to easier-to-understand exchange-traded funds. Here’s an example from a reader. 

“I attempted to buy Fidelity Canadian Growth Company Fund. When I came to choose the fund, I found there were two with this name. One had a NAV of $26 and one of $13. I have a very limited knowledge in funds and obviously am very poor at this game. I take it there are no symbols for funds as there are for stocks. Where am I going wrong when I want to order funds? How can I easily find the right one?” – P.O.D.

Unfortunately, the reader describes an increasingly common problem for investors. It’s caused by the fact that the mutual fund companies have decided that several versions of the same fund are better than one. So for any given fund you may have the core units, U.S. dollar units, clone units, segregated units, fee-based units, front-end load units, back-end load its, low-load units, and, as in this case, class units. Confusion abounds!

Cracking the code
Funds do not have trading symbols, which makes things much easier when buying stocks. They do have codes, however. Unfortunately, you have to do some work to find them as neither Globefund nor Morningstar show the codes on their websites. Sometimes, but not always, they are available through the website of the fund company itself. If you go to the Fidelity site at www.fidelity.ca and click on Fidelity Funds and then Fund Facts and Codes, you’ll find these details. Here’s how it breaks out.

Fidelity Canadian Growth Company Class. This is part of Fidelity Capital Structure, which is an umbrella fund designed for non-registered accounts. The purpose is to allow investors to move money from one pool (“class”) to another without triggering a capital gain. These units have a higher management expense ratio (MER) and a lower return than the A units.

Fidelity Canadian Growth Company Fund, Series A. This is the original fund and it has a much longer history. However, even that seemingly simple answer is more complex than it should be. That’s because there are three types of units within the fund. The front-end load units are sold under code #265. The back-end load (DSC) units go by code #565. The F units for fee-based accounts are identified as code #665. If you can get the F (#665) units, they are the best choice because they have a lower MER. Otherwise, try to buy the #265 units at zero commission.

Given the multiplicity of different units for the same fund, it seems to me that the time has come for the industry to start doing more to educate the public in the use of codes and where to find them. Advisors have this information but many retail fund investors aren’t even aware that codes exist. That has to change.