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Mutual Fund News

Index funds strut their stuff in ETF territory

rcarrick@globeandmail.com

WHAT WE'RE LOOKING AT

Bargains in index mutual funds.

OUR SCREEN

With all the fuss being made over exchange-traded funds these days, you may have forgotten that the mutual fund world offers its own take on index investing. Index funds are sold mainly by the big banks, and they offer exposure to all kinds of stock and bond indexes. The key distinguishing feature is fees, which is the point of today's screen. You'll find index funds of all types ranked here from lowest management expense ratio on up.

WHAT WE FOUND

The TD e-series of index funds rule. You can only buy these online through TD or through the online broker TD Waterhouse, but these funds are a true indexing bargain. Consider them to be a totally legitimate substitute for ETFs. Note that TD offers a more widely available series of its index products, but the fees are in the area of two times higher.

Another reasonably priced family of index funds comes from Altamira, once a fund industry sparkplug and now just a brand name kept up by National Bank of Canada (which bought Altamira in 2002). RBC's family of index funds are also reasonably priced.

Part of the reason why index funds don't get the attention that exchange-traded funds do is that ETFs are generally much cheaper to own. Remember: with indexing, cheaper is always better. You have to pay brokerage commissions to trade ETFs, while index funds typically cost nothing to buy or sell. But even so, ETFs are a lower-cost option in many cases.

And yet, today's screen suggests that index funds are still worth considering if you can't or won't invest in ETFs. Check out the five-year quartile rankings for today's funds. Each of the 30 lowest-price index funds ranks in the first or second quartile for the five years to March 31 (quartiles divide funds in a category into four groups by their returns - first is best and fourth is worst). The message here is that indexing is a valid strategy for investors even with the higher fees of index funds over ETFs.

***

Index Funds with low MERs
($-mil)QuartQuartQuart
Fund nameCategoryAssetsMER1-yr3-yr5-yr
TD Canadian Index-eCanadian Equity*0.31211
TD Dow Jones Average Index-eU.S. Equity*0.31311
TD Canadian Bond Index-eCanadian Fixed Income*0.48311
TD European Index-eEuropean Equity*0.48122
TD International Index-eInternational Equity*0.48322
TD Japanese Index-eJapanese Equity*0.48311
TD NASDAQ Index-eU.S. Equity*0.48111
TD U.S. Index Currency Neutral-eU.S. Equity*0.48111
TD International Index Curr Neut-eInternational Equity*0.50121
Altamira Canadian IndexCanadian Equity246.40.52311
Altamira Intl Currency Neutral IdxInternational Equity84.10.52111
Altamira US Currency Neutral IndexU.S. Equity114.80.52121
TD U.S. IndexU.S. Equity325.90.53322
RBC Canadian Bond IndexCanadian Fixed Income322.50.63411
RBC Intl Index Currency NeutralInternational Equity266.10.67111
RBC Canadian IndexCanadian Equity580.00.68211
RBC U.S. Index Currency NeutralU.S. Equity241.50.69121
RBC U.S. IndexU.S. Equity59.40.70322
TD Canadian Bond IndexCanadian Fixed Income366.30.79422
TD Balanced IndexCanadian Neutral Balanced48.10.83322
TD Canadian IndexCanadian Equity852.60.84211
TD Dow Jones Average IndexU.S. Equity48.20.84312
TD U.S. Index Currency Neutral-IU.S. Equity103.50.84111
Altamira US IndexU.S. Equity11.80.86312
Scotia Canadian Bond IndexCanadian Fixed Income262.30.86422
Quebec Professionals American IndexU.S. Equity15.20.88332
Altamira International IndexInternational Equity14.20.92222
* Assets are included in totals for other versions of the same funds
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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