![]() ![]() It is always recommended to speak with a financial advisor or investment professional before investing. This article does not constitute financial advice. Here are the top-rated funds in the category today inclusive of their recent returns: Funds in the Canadian Fixed Income Balanced category hold 60-95% in CAD denominated bonds (with the remainder in equities) and no more than 30% foreign exposure. By 2013, all fund categories had recovered back to their pre-crash levels.Īcross all three major financial events, it appears that the Canadian fixed income balanced category showed a combination of small drawdown followed by a quick recovery period. Most fund categories took between two and four years to recover back to their peak values. Over this time frame the market experienced its largest drawdowns in recent history ranging from -6.7% (for Global Fixed income funds) to -49% (Canadian Small/Mid Cap funds). The crux of drawdown over the last three decades happened during the credit crisis of 2008-2009. Over this short seven-year time frame, a few categories of funds were not able to recover their peak value including North American equities and global fixed income funds. During this period, maximum drawdown ranged from -2% (Fixed Income Balanced funds) to -43% (Canadian SMID Cap Equities). The early 2000’s to most investors stirs up memories of the tech bubble as well as the 9/11 attack on the world trade center. Most categories recovered within 24 months, but there was one category of funds that did not recover during this time period (Global Fixed Income), and one category that did not experience a drawdown (Global Fixed Income Balanced) – denoted by the red ‘x’ on the chart. During this time, the maximum drawdown amongst popular fund categories ranged from -8% (Canadian Fixed Income Balanced Funds) to -30% (North American Equity Funds). The 1990’s brought with it the end of the Cold War, the Persian Gulf war, the Asian currency crisis, and the creation of the North American Free Trade Agreement. Also included is a table of returns over the timeframe and months where the peaks and valleys occurred. Fund categories on the bottom right of the chart can be regarded as more conservative. The closer a fund category is to the bottom, the faster it recovered from its drop. ![]() The closer a category is to the left, the more severe the drawdown. The charts below plot the maximum drawdown (horizontal axis) against the recovery period (vertical axis). ![]() Although COVID-19 may be dominating investor outlook now (a term known as recency bias), remember that we’ve had large swings in the past and ultimately it is risk tolerance that should determine what asset class mix is suitable an investor’s long-term financial plan. Maximum drawdown can be a very good ‘gut check’ to help an investor understand whether an asset class is too risky for her liking. The subsequent period is known as the recovery phase, and we can measure this in months to determine the amount of time after a correction it takes for an investment to recover its peak value. In financial terms, this is the value of portfolio lost from peak to valley during a market correction. To do this, we’ll look at a key statistic: maximum drawdown. In effect, this shows that that over the long term, the value of investments has gone up, with many peaks and valleys along the way. Each line represents the average returns of funds in that category with a theoretical starting investment of $10,000 CAD. The above chart depicts the long term returns of various popular mutual fund categories within Canada. ![]()
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