Find bargain mutual funds
It seems as if every mutual fund investor is looking for a bargain these days.
High MERs (management expense ratios) and expensive sales commissions have become more of an issue as returns decline.
As a result, some investors are moving to exchange-traded funds (ETFs). These are designed to replicate various market indexes and sub-indexes.
In Canada, these trade on the Toronto Stock Exchange under the general designation of iUnits.
The best known are the i60s, which replicate the S&P/TSE 60 Index, which is the closest thing we have to the Dow.
They trade under the symbol XIU.
Other iUnits offer a play on such sectors as gold and energy, and the bond market. As well, there are iUnits that are 100 per cent RRSP-eligible, so they don’t encroach oforeign content in a registered plan.
In New York, you can buy ETFs that track almost any index imaginable, from Nasdaq to Nikkei.
Appeal and alternatives
The attraction with ETFs is a very low management expense ratio (MER).
The cost disadvantage is that you have to pay brokerage commissions when you buy and sell.
An alternative worth considering is the eFunds from TD Asset Management. They’re no-load, which means no sales commissions in or out, and the MERs are very low (not quite as low as the ETFs in most cases, but close).
The catch is that they are only available for purchase on the Internet. You have to be a TD Waterhouse client or open a special TD eFunds account.
Next page: Details on funds
Details on funds
There are 11 funds in the family (plus two U.S. dollar options), all of them index funds.
There are three domestic funds, two bond and one equity.
There are four U.S. equity funds, two of which are based on the S&P 500 Index, one on the Dow Jones Industrial Average, and one on the Nasdaq 100.
The remaining four are based on international indexes, including a European fund and a dedicated Japanese fund.
Savings mount up
To illustrate the saving, the MER of the regular units of the TD Canadian Bond Index Fund is 0.90 per cent.
The MER of the e units is 0.47 per cent. Over the 12 months to the end of January, this
translated into a difference in the return of almost half a percentage point (6.4 per cent for the regular units, 6.88 per cent for the e units).
Put another way, the return on the e units was 7.5 per cent more.
The difference is even more pronounced in some of the equity funds. For example, the TD Dow Jones Average Index Fund has an MER of 0.88 per cent.
But the e units come in at just 0.31 per cent. Over the year to Jan. 31, the regular units declined 2.48 per cent in value, while the e units dropped 1.86 per cent. So the loss for the e units was one-third less.
I rest my case. Check them out.
Adapted from an article in the March 2002 edition of Mutual Funds Update.