Beating the pros the easy way: HIP s and TIP s provide an easy solution - Hundred Index Participation Unit - Toronto Index participation Unit

Money Digest, Dec, 1996

Most experts do not beat the market indices

Do experts beat the market? Contrary to what you may believe, many professionals do not beat the market. For instance, only two-thirds of all Canadian mutual funds did better than the market average over the past ten years. Similar results have been obtained in the United States as well.

How to invest directly in market indices

If seven out of 10 money managers do not do better than the market average, why bother to go through a mutual fund at all? Why not invest directly in stocks that comprise the index? It is as easy as it sounds because of the availability of Hundred Index Participation Units (HIPs) and Toronto Index Participation Units (TIPs).

HIPs and TIPs trade on the Toronto Stock Exchange. You can consider them as closed-end index funds. TIPs invest in stocks that make up the Toronto 35 Index and HIPs invest in stocks that makeup the Toronto 100 Index. By investing in either of these two, you achieve immediate diversification. TIPs, in particular, provide access to a group of quality blue chip stocks.

Which one should you choose?

Which of the two indices is better? When we compare using historic figures, the returns you get from both indexes are practically identical. Based on past results, it does not at all matter which one you buy, as long as you intend to hold, it for a few years. However, Toronto 100 returns are more volatile than Toronto 35.

It means that, although both provide similar returns, TIPs are better than HIPs on a risk-adjusted basis. Therefore, if you are a conservative investor, TIPs are more likely to suit your needs.