It is possible to construct portfolios less risky than their benchmarks and generating higher returns.

Mineault Guy, professor of finance at retirement, which patented a tool for evaluating the performance of investment funds, explained his method on the occasion of a lecture presented to members of the Movement for Education and Advocacy shareholders (MEDAC).

Find fine funds

Using Paltrak, the counselor should require the following three characteristics of their portfolios: they decrease less often than their benchmark, that when reduced, they decrease to a lesser extent than the index and rise in least to an extent equal to the index. This way, they are assured of having a portfolio that will outperform the index.


In more technical terms, the ideal is to find funds that have only one level of risk measured by its standard deviation lower than the index, but has a greater yield. In the composition of a portfolio, we can still match funds with similar levels of risk and return lower than the index with other levels with risk and return higher than the index, since these funds will achieve the three desired characteristics of a portfolio.

In his book Better your investments succeed without suffering, Guy Mineault details the various risk indicators it uses to sort the funds based on these characteristics, including alpha, beta or Sharpe measure.

Advisors should be careful to benchmark indexes. “Sometimes, with the funds choose benchmarks super easy to beat. It’s as if I choose to take on the wrist with a 3 year old. The real test is to be measured with an adult man, “said Guy Mineault.

For equity funds, the adult man is the S & P / TSX, which is much harder to beat than the S & P 500. “For 10 years, the S & P / TSX down less often than the S & P 500. And when the stock resumes, the S & P / TSX soundly beats the S & P 500 all year, “does it mention. For income funds, he believes that the suitable index is the ML RT CAD Canadian market expanded. For portfolios, the retired professor target the S & P / TSX.

Funds with three years of experience

In order to properly assess the fund’s portfolio, they should have at least three years of experience. This is the minimum time to evaluate past performance, according to Guy Mineault. Indeed, some fund houses are changing the name of their funds when they go wrong. Other merge with the other after a while to give them a fresh start. “Usually we do this when the stock market is bullish to” hide “their poor performance when the stock market was bearish. It is intellectually dishonest, “says Guy Mineault.

Promote sectoral diversification

Geographic diversification is no longer reason for being, according to Guy Mineault. Today, the correlation between different countries and regions worldwide is high, which does not serve the customer, which should rather see the money in his wallet weakly correlated. The retired teacher encourages diversification by sub-sector, which is much less correlated.

It also emphasizes five major sub-sectors, which believes offer the best long-term: energy, materials, finance, technology and telecommunications and industrial companies.

“Throw the manager in the trash”

The reputation of the fund manager does not matter in the performance of a portfolio. Although it plays an indispensable role in selecting the securities, the manager is much less important than diversification or investment rules as the rebalancing of securities.

“The portfolio manager, I throw in the trash,” he stated during the conference. “According to at least two serious studies, how the funds are combined in a portfolio of funds account for at least 90% of portfolio performance and the choice of securities in a fund for only about 8%,” we learn in his book.

Made to undergo stress testing the portfolio

After designing a portfolio for a client, Guy Mineault recommend it to undergo three stress tests (stress test), that is to say by checking their behavior during many periods of market turbulence. If the portfolio has an acceptable performance during two periods in which the S & P / TSX is treading water, or from August 2000 to July 2005 and May 2008 to January 2011, and during the last steep ascent rates of Interest (May 2004-May 2006) it “passes the test.”

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