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TD wants you to buy its e-series funds - really

rcarrick@globeandmail.com

Tom Dyck knows the conspiracy theory about the well-loved but frustratingly elusive e-series of index funds he oversees as president of TD Mutual Funds.

He reads the investment blogs that are so smitten with e-series funds because of how cheap and useful they are. He's seen the frustration with how hard it is to buy e-series funds, which are strictly for online investors.

"The bloggers would all predict that the reason for this is that we don't want anyone to buy them," Mr. Dyck said in a recent interview.

Any truth in that?

"I would be happy to sell e-series funds every day to every single Canadian investor," he answered.

OK, so no conspiracy. But you can see where the idea of a plot came from. The e-series of funds cost less to own than virtually all other widely available index funds, and they're cheaper than some exchange-traded funds. And yet, they're totally inconvenient to buy.

The defining characteristic of e-series funds is that you have to manage your account online. That's why e-series funds are so cheap to own. But you can't open an e-series account online, nor can you do it in a TD Canada Trust branch. That leaves downloading forms online and then mailing them in, or opening a TD Waterhouse online brokerage account and then ordering up some e-series funds.

"The reality is, we haven't made it easy for people to buy them," Mr. Dyck said.

TD is finally doing something about this. Citing what he believes to be a pent-up demand for e-series funds, Mr. Dyck has a team of people working on the sales issue. There's an online account application in the works for e-series funds as part of a general upgrading of TD websites, and the bank has carved out a dedicated webpage for the e-series at http://www.tdcanadatrust.com/tdeseriesfunds.

Count me among the fans of e-series funds, which I listed as one of five top mutual fund deals in my book, Rob Carrick's Guide to What's Good, Bad and Downright Awful in Canadian Investments Today. You can also include Dan Bortolotti of the Canadian Couch Potato blog, who built his Global Couch Potato portfolio using them.

Another blogger who uses them is Krystal Yee of Give Me Back My Five Bucks. She had some problems managing her e-series account recently and said the only reason she's still a TD Canada Trust client is because "their e-series mutual funds can't be beat."

Here's why we all like e-series funds:

Low cost: The management expense ratio for the TD Canadian Index e-series fund is 0.32 per cent. A comparable ETF is the iShares S&P/TSX Capped Composite Index Fund, with an MER of 0.26 per cent. You can buy and sell TD e-series funds at no cost, whereas you have to pay brokerage commissions to trade ETFs.

Simplicity: There are eight e-series funds (12 if you include U.S.-dollar and currency-neutral options) covering Canadians stocks and bonds, and U.S. and international markets. You can't build the most sophisticated portfolio with this group, but you can build a perfectly solid portfolio for the long term. (A suggested addition to the family is an emerging-market fund).

The TD brand name: Familiar and strong. TD introduced its e-series funds back in late 1999, and today they have total assets of about $612-million (that's separate from TD's conventional, more expensive lineup of index funds). Mr. Dyck said clients tend to be young, new to investing and very comfortable with online investing and banking.

Given TD's sad experience with ETFs a decade ago, you could argue that conspiracy theorists have reason to wonder about the commitment to e-series funds. The bank introduced a small family of ETFs and, after several years of ignoring them, shut them down at just the right time to miss the ETF growth phenomenon of the past several years.

Mr. Dyck concedes that there's some internal tension at TD about the role of e-series funds, which are very much a self-serve option. "TD Canada Trust as an organization is known for its service and convenience. The notion of a product that isn't fully aligned with that value proposition is very, very tough. It's an unusual space for us at TD Canada Trust and why actually why we are where we are."

Still, Mr. Dyck said he's committed to making e-series funds easier to buy and thus more accessible.

"Can you imagine if we made them easy for people to buy?" he recalls asking a senior TD executive during a recent conversation. "What might happen?"

************

A MUTUAL FUND BARGAIN

How TD's e-series Canadian Index Fund compares to a selection of the most popular index funds and exchange-traded funds:

FundMER (%)
TD Canadian Index e0.32
TD Canadian Index*0.86
CIBC Canadian Index1.12
RBC Canadian Index0.70
iShares S&P/TSX Capped Composite Index Fund0.26
BMO Dow Jones Cda Titans 60 ETF0.16
Claymore Cdn Fundamental Index ETF0.72
* TD Canadian Index is TD's conventional index fund, whereas the e version is only for online clients. MER stands for management expense ratio, which is the definitive measure of the fees charged to own a mutual fund or ETF

© 2007 The Globe and Mail. All rights reserved.

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