Actively Managed REIT Fund vs REIT ETF

The Sentry REIT Fund is an actively managed mutual fund that holds Canadian and US REITs.  It could be an alternative to holding private REITs or putting your own basket of individual stocks together.  One question you may ask is whether its active management, with a fee of 2.25%, is worth it - does the cost of management pay for itself and enhance returns?  Some numbers to consider...

Sentry charts the following returns assuming reinvestment of all distributions.  The Sentry REIT Fund's 2 year return of 13.2% is less than the 16.14% return of the ZRE, BMO's Equal Weight REITs Index ETF.  Similarly, the Sentry 1 year return of 16.4% is less than BMO's 18.46% return.

So while Sentry's fund is actively managed, is it so large ($1.4B assets under management) and diversified, it pretty well follows the index.

BMO's ZRE 's is designed to follow an index (Dow Jones Canada Select Equal Weight REIT Index) with little tracking error.  ZRE annual maximum management fee is only 0.55% compared to the Sentry fee of 2.25% - so the high mutual fund fees really just erode returns, and the active management you are paying for does not add value in terms of performance (in this case).  Previous posts have reinforced this for Investors Group funds.  You are better off buying the index ETF.

ETFs offer liquidity and low trading costs (now free trades at Questrade).  The Sentry Fund has the downside of high deferred sales charges if you sell within the next six (ouch!) years.  This table shows that the charges are more punitive than even some Investors Group DSCs.  So you are locked into those lower returns unless you want to pay more to get out.

I read that there was a reason that some mutual funded exit fees are so high - its worth it to get out!