Private Counsel Portfolio ManagementSimple + Modern

Enlightened Investors

Enlightened investors have already begun to question the traditional approach to portfolio management offered by large banks, brokerage firms and mutual fund companies. They know that a system of paying for transactions, advice in the form of product recommendations, obscure disclosure of costs, and weak reporting benefit the investment industry more than investors.

Enlightened investors intuitively recognize how difficult it is to consistently and accurately predict the best securities (stocks, bonds, mutual funds etc.), which money manager will outperform, or when to be in or out of the market or out–as is the traditional approach to managing portfolios.

These attempts to beat the market return fail for the simple reasons that predictions are often wrong. In the ultra-competitive investment industry and largely efficient investment markets, it is mathematically impossible for all investors to outperform. Yet market outperformance through astute recommendations is the implied benefit offered by brokers, mutual fund managers, and professional investors.

Enlightened investors ask, “Are the pros beating the market return?”

The answer is found in the Standard & Poor’s Indices Versus Active Funds (SPIVA) 1 Canada Scorecard, where the performance of mutual fund managers is compared to their respective benchmark.

Percentage of Actively Managed Mutual Funds Outperforming Their Index
(as of December 31, 2011)


One Year

Three Year

Five Year

Canadian Equity Mutual Funds




U.S. Equity Mutual Funds




International Equity Mutual Funds





In 2011, roughly 27% of actively managed Canadian mutual fund managers outperformed the S&P TSX Composite Index. Only 8% of actively managed U.S. equity funds outperformed the S&P 500 in Canadian dollar terms, while less than 5% of actively managed International equity funds outperformed their respective index return.

Over a five-year period, approximately 10% or fewer actively managed mutual funds were able to generate returns after fees that were superior to the index market return. Keep in mind that there's no way to identify the few out-performers in advance, and the laggards could underperform the index return by half a percent or five percent.

Would the portfolios managed by brokers as a group do any better? Is there a group of advisors that can make better predictions than everyone else?

Reality check! The market return beat 90% of mutual fund managers over a five-year period. Rough odds. You have a 10% chance of a higher return than the market and a 90% chance of having one lower.

Enlightened investors know indexed portfolios get market returns with little chance of underperformance. (No crystal ball required!) They are the ones asking, "Why don't we just index?"

Enlightened investors also know that they keep returns after fees and taxes are deducted. Indexing frees investors to focus on a strong portfolio structure to reduce these frictional costs.

These early adopters of modern portfolio management focus on the things that they can control. They are looking for financial services outside of what is offered by banks, brokerage firms and mutual fund companies.

The Index House offers:

  • Market returns without relying on predictions
  • Less risk by reducing or eliminating uncompensated risk
  • Lower fees that are disclosed at inception, and throughout our provision of services
  • Less tax by aligning investment incomes with your account types
  • Better reporting by disclosing returns, fees, and holdings quarterly


  1. Standard & Poor's Financial Services LLD., S&P Indices Versus Active Funds (SPIVA®) Canada Scorecard, Year-end 2011. Aye Soe and Abigail Etches. 2012: The McGraw-Hill Companies. (Permission to reproduce has been granted by the publisher.