# Index fund portfolio.



## taal (Dec 30, 2010)

Hi All,

I'm building a relatively hands off index fund portfolio and had a couple questions regarding the global component.

First to answer the "why not go the ETF route" the portfolio is just too small now (under 20K). I do plan to convert at the end of the year i.e. transfer the majority of the funds into an ETF plan and continue this cycle.

Anyway, to date I've considered the following:
30% RBF556 RBC Canadian Index
25% TDB661 TD US Index
20% TDB966 TD Canadian Bond Index
05% PHN650 PH&N Inflation-Linked Bond Series D
20% NBC839 Altamira International Index

Asset allocation will probably be:


Just a few notes:
- I personally prefer short term bonds but there's no 'cheep' index fund with a low initial contribution limit - so I was forced to go with TD's (DEX universal index) which I consider medium term.

My issue is it seems there's no good emerging market index fund that's cheep (i.e. with a low MER) anyone have any good suggestions here?

I was also curious what your take is on currency hedging for the international funds (i.e. US / other)? I plan on getting the hedged versions but I've been flip flopping on this decision as of late.

Thanks!


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## the-royal-mail (Dec 11, 2009)

Not sure why you would want to convert from index funds to ETFs. I see them as quite similar.

How is the performance of each of those funds you are considering? The last time I checked, the performance (with my bank's lineup) of US and INT funds sucked in comparison to the CDN index and precious metals, so I don't even waste time on them and just go for the gold. And CDN Index. There are tools online (that you may have already seen and used) that allow you to overlay graphs of various funds so you can visually compare their performance.

But that's just me.


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## Spidey (May 11, 2009)

Just a few notes. 

AFAIK you can't hold PHN "D" funds unless you have a minimum of $25000 invested with them. If you do, they have a good short term bond fund. In fact all of their bond funds represent a fairly decent alternative to ETFs. I've compared their returns to the most equivalent ETFs and they are similar, especially when one considers buy/sell fees with ETFs.

Otherwise you may have to just bite the bullet and buy the TD ST bond fund, if you wish to hold this category. I had to do this in my kids RESP which I hold with TD.

For emerging markets, I would recommend buying perhaps a hundred shares of BMO's emerging market ETF - ZEM (currently 100 shares would cost $1698). I would recommend a "limit order" over a "market order" though, because this ETF is sometimes fairly thinly traded. 

Generally other than those comments, with a $20,000 portfolio I would just stick to TD "e" funds if you have an account with TD. These index funds have the lowest MERs among mutual funds (usually around 0.3%) and can compare favorably to ETFs if you are constantly making additions in smaller quantities.


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## taal (Dec 30, 2010)

the-royal-mail said:


> Not sure why you would want to convert from index funds to ETFs. I see them as quite similar.
> 
> How is the performance of each of those funds you are considering? The last time I checked, the performance (with my bank's lineup) of US and INT funds sucked in comparison to the CDN index and precious metals, so I don't even waste time on them and just go for the gold. And CDN Index. There are tools online (that you may have already seen and used) that allow you to overlay graphs of various funds so you can visually compare their performance.
> 
> But that's just me.


Chasing returns eh : ) ? - you'll most likely do pretty well using that approach though.

Thanks for the advice - I prefer to be relatively hands off for the RRSP component so the Canadian index already has some gold / resource exposure. Those other funds have indeed performed bad over the last year or so - that's not the funds fault, rather the index's they've been tracking so in my books they're doing an OK job.


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## taal (Dec 30, 2010)

Spidey said:


> Just a few notes.
> 
> AFAIK you can't hold PHN "D" funds unless you have a minimum of $25000 invested with them. If you do, they have a good short term bond fund. In fact all of their bond funds represent a fairly decent alternative to ETFs. I've compared their returns to the most equivalent ETFs and they are similar, especially when one considers buy/sell fees with ETFs.
> 
> ...


Thanks a bunch! Looks like the minimum investment in a RRSP self directed account from RBC is actually only $250.

I like e-funds but don't want to go through the hassle of opening an account with TD - particularly because I do plan on using ETFs soon anyway - but you're absolutely correct that they're the best index funds to use.


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## OhGreatGuru (May 24, 2009)

I don't know why you want to bother mixing indexes from different institutions. They are all trying to track as closely as possible the same benchmark indices. The principal differences between them will be their MERs.

If you invest with PH&N you can also buy RBC index funds. (and many D Series RBC funds)

TD e-funds seem to have the the lowest MERs.


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## Broke (May 11, 2010)

taal said:


> Hi All,
> 
> I'm building a relatively hands off index fund portfolio and had a couple questions regarding the global component.
> 
> ...


My index fund portfolio is at TD and I only have e-series funds in it. It's difficult to beat their MERs (significantly lower than the regular funds) and the portfolio is easy to rebalance over the Internet.


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## CanadianCapitalist (Mar 31, 2009)

OhGreatGuru said:


> I don't know why you want to bother mixing indexes from different institutions. They are all trying to track as closely as possible the same benchmark indices. The principal differences between them will be their MERs.
> 
> If you invest with PH&N you can also buy RBC index funds. (and many D Series RBC funds)
> 
> TD e-funds seem to have the the lowest MERs.


+1. I don't understand why you'd want index funds from various institutions either. I have TD e-Series Funds in my kids RESPs as well. Pretty much the lowest MERs around for small accounts.

Currency hedging is a complicated topic. May I (somewhat self-servingly) suggest checking out these posts on my blog?

http://www.canadiancapitalist.com/category/currency-hedging/


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## taal (Dec 30, 2010)

CanadianCapitalist said:


> +1. I don't understand why you'd want index funds from various institutions either. I have TD e-Series Funds in my kids RESPs as well. Pretty much the lowest MERs around for small accounts.
> 
> Currency hedging is a complicated topic. May I (somewhat self-servingly) suggest checking out these posts on my blog?
> 
> http://www.canadiancapitalist.com/category/currency-hedging/


Thanks for the reply and the link - I recall taking a look at those a few months ago now actually  Must have forget - thanks again! - it seems as if the cost is definitely not worth it over the long term. I also compared some of these funds and as you mentioned the tracking errors can be really high at time (5-10% difference) - it only happens for a short period typically.

It seems like my posts take more then a day to show up - so I'm not quite sure if I already mentioned this:

I don't want to open an account for TD as I'll be moving over to ETFs sooner then later and those funds are only available from TD. Regarding mixing different companies - I generally just take the one with the lowest MER.


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## kcowan (Jul 1, 2010)

Bernstein on ETFs (page 2)


> ...by and large you support the emergence of the ETF as an investment vehicle?
> 
> Bernstein: Not really. There are very few cases where you can get access with an ETF that you can’t get with a plain vanilla mutual fund. And I would always go with the plain vanilla mutual fund because you don’t have the liquidity problem. When you really need the liquidity with an ETF – even the most liquid ETFs – it’s going to dry up, particularly on the bond side. But there are a couple of cases where I do recommend the ETF, where you just don’t have access to the asset class in open-end form.
> 
> ...


Although MF fees vary in Canada, some of his thinking may be relevant?


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## Belguy (May 24, 2010)

If you go the mutual fund route in Canada, know that fees matter and that they are generally significantly higher in Canada and can have a significant negative long term effect on your returns.

At the very least, consider some of the low fee fund companies out there such as Beutel Goodman, Leith Wheeler, Mawer, McLean Budden, and PH&N D Series.

I don't really worry about liquidity when investing in ETF's because I intend to hold them 'forever' as I am not a market timer or an active trader or a lottery player.


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## Rysto (Nov 22, 2010)

Liquidity problems are rare, and you can protect yourself by only using limit orders. Bernstein's complaint would seem to mostly apply only to market timers anyway. Anybody trying to implement a simple indexing portfolio won't be affected by a temporary loss of liquidity.


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## windar2001 (Dec 21, 2010)

The stock portion of your portfolio is highly correlated and mostly large cap (blend?). You would be better off getting value and/or small cap exposure. You could also add emerging markets exposure, commodities and real estate when your portfolio grows. Although commodities from a canadian perspective is also highly correlated nowadays...

As a final note, I keep seeing TD funds being promoted. Do your due diligence first. Ex. Where I live, I wouldn't hold a RESP at TD.

Just my 2 cents.


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## fortunate_son (Jan 3, 2011)

Spidey said:


> AFAIK you can't hold PHN "D" funds unless you have a minimum of $25000 invested with them.


From PH&N's website:

"The minimum investment required to purchase PH&N funds through discount broker is $5,000 per account."


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## Belguy (May 24, 2010)

For what it's worth, as mentioned before, my core bond holding is the PH&N Bond Fund Series D just because I feel a tad more comfortable at this time with professional management behind my investment than investing in bond ETF's which track bond indices.

That said, I am prepared to still take losses on this investment going forward as all bond funds will likely take a hit.


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## kcowan (Jul 1, 2010)

Belguy said:


> ...I am prepared to still take losses on this investment going forward as all bond funds will likely take a hit.


Really? That seems to be a change of heart. Have you given up on the alternative to buy 20 dividend-paying stocks?


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## Belguy (May 24, 2010)

After much in-depth research and investigation, I have determined that dividend paying stocks are, in fact, equities and not fixed income investments.

Since my asset allocation is 60/40 equities to fixed income, my fixed income investments should be bonds, GIC's etc.

That doesn't mean that I am any more comfortable investing in bonds at this stage of the cycle.


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## Sherlock (Apr 18, 2010)

Don't you guys think indexing is suicide in a range-bound market?


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## MikeT (Feb 16, 2010)

Sherlock said:


> Don't you guys think indexing is suicide in a range-bound market?


I printed that out and stickied it to my monitor. Most intelligent thought I've heard this week.


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## humble_pie (Jun 7, 2009)

indexing is suicide in a rangebound market.

only way to change this up is options.


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## olivaw (Nov 21, 2010)

Sherlock said:


> Don't you guys think indexing is suicide in a range-bound market?


Many of the "experts" who claim to know that the market will be range bound are money managers who want to help you stock pick - for a fee. Weren't they claiming the death of buy and hold index investing a year ago?


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## funinagg (Jun 10, 2010)

fortunate_son said:


> From PH&N's website:
> 
> "The minimum investment required to purchase PH&N funds through discount broker is $5,000 per account."


can confirm it is $5,000 for PH&N funds at RBC Direct. and $10,000 for RBC D series funds.


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## the-royal-mail (Dec 11, 2009)

I just don't see what's so bad about index funds. I LOVE them. They're great. Match the performance of whatever "category" they're matching and low fees. ETFs too. IMO anyone who tries to steer you away from them wants you to spend more in fees. 

Really, there aren't that many index funds available at any given bank. BMO for instance only has like three of them, called ETFs. I wish they would make more of these available.


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## Belguy (May 24, 2010)

From where I sit, BMO currently has 30 or so Index ETF's with more to come. Claymore and iShares have at least as many and likely more. Most of the banks have several index mutual funds. I don't see any lack of such products in the Canadian market.


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## the-royal-mail (Dec 11, 2009)

??

Last time I checked, BMO only had three index funds. Canadian, US and some international one. All the others were actively managed. What am I missing?


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## kcowan (Jul 1, 2010)

Belguy said:


> ... I don't see any lack of such products in the Canadian market.


What about taking a stake in health care? IANAE but I don't recall seeing one.


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## bltman (Aug 12, 2010)

Belguy said:


> From where I sit, BMO currently has 30 or so Index ETF's with more to come. Claymore and iShares have at least as many and likely more. Most of the banks have several index mutual funds. I don't see any lack of such products in the Canadian market.





the-royal-mail said:


> ??
> 
> Last time I checked, BMO only had three index funds. Canadian, US and some international one. All the others were actively managed. What am I missing?


BMO only has 3 index mutual funds. But, BMO also offers a bunch of its own branded index ETFs that trade on the TSX. For the 3 BMO index mutual funds, their sole holdings are the equivalent BMO ETFs (hence the name change of their index mutual funds to refer to the ETFs which they hold).

While Canada has choice when it comes to low MER ETFs, what Canada lacks are low MER index mutual funds and variety of index mutual funds. The only ultra-low MER index mutual funds in Canada are the TD e-series funds. Holding over 150k in CIBC index funds also brings the MER down on their index funds to e-series levels (and CIBC is the only bank offering a very good variety of index mutual funds). In the US, both Vanguard and Fidelity offer ultra low MER index mutual funds. This allows investors to choose between index funds and ETFs.


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## CanadianCapitalist (Mar 31, 2009)

Belguy said:


> From where I sit, BMO currently has 30 or so Index ETF's with more to come. Claymore and iShares have at least as many and likely more. Most of the banks have several index mutual funds. I don't see any lack of such products in the Canadian market.


I see too many ETF products in the Canadian market. I really don't want to see more ETFs than TSX stocks! We're already more than half-way there.


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## andrewf (Mar 1, 2010)

I don't see what the problem is. More ETFs is generally great. We get competition and more innovative products. I think Canada could still use some more commodity ETFs and more funds with tax-efficient structures. There's even some room for a few actively managed ETFs, too, I think. I'd like a global tactical asset allocation ETF similar to NYSE:GTAA but built from the perspective of a Canadian investor and optimized for our tax regime. We can dream!


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## Belguy (May 24, 2010)

Heh, Keith, I have just the Canadian ETF for you:

http://www.etfs.bmo.com/bmo-etfs/glance?fundId=80008

What do you think?


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## kcowan (Jul 1, 2010)

Belguy said:


> Heh, Keith, I have just the Canadian ETF for you:
> 
> http://www.etfs.bmo.com/bmo-etfs/glance?fundId=80008
> 
> What do you think?


It seems to accomplish what I was suggesting given the concentration in Finance and Materials of the TSX. Thanks for the pointer.


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