Self-directed investors aiming to buy low-cost managed money products online are finding more options all the time.
"There's more than enough product out there for do-it-yourselfers," says Dan Hallett, president of Dan Hallett & Associates Inc., an independent fund analysis firm based in Windsor, Ont.
The offerings include a growing array of passively managed exchange traded funds (or ETFs, for short) and index funds, which essentially track various global stock indexes, plus more lower-cost actively managed funds with bells and whistles to appeal to different types of do-it-yourselfers.
Passive investments
ETFs are the lowest cost funds available through electronic channels. Investors can buy 46 of them in Canada. Barclays Global Investors Canada Ltd. offers 24 iShare ETFs while, between them, BetaPro Management Inc. and Claymore Investments offer another 22.
The ETFs are set up to automatically invest in the stocks in the relative weight that they are held in indexes such as the Toronto Stock Exchange's composite index, or specialty indexes of all sorts.
The iShares Cdn Jantzi Social Index Fund (XEN) invests in Jantzi Research Inc.'s index of companies that meet certain standards of environmental and social performance, for example.
Investors might also choose to invest a small portion of their portfolios in BetaPro Management's Horizons S&P/TSX Capped Energy ETF, which offers heightened exposure to the country's hottest sector.
The management expense ratios (MERs) for Canadian stock-market ETFs are as low as 0.17 per cent to 0.25 per cent.
Next up the value chain are index funds, which are slightly more expensive, but solve a couple of the quirky problems of ETFs for some investors. Dozens of companies offer index funds that also track a variety of global indexes.
TD Asset Management offers E-series funds at management fees ranging from 0.3 per cent to 0.5 per cent. Although they are more expensive than ETFs, Mr. Hallett notes that index finds tend to be easier to manage and trade.
"When you compare them against the ETF, it's competitive," he says, noting that mutual funds allow investors to automatically reinvest distributions, while ETF investors will wait to accumulate enough extra cash to buy more shares in the ETFs, which adds further trading costs.
Active management
You'll expect to pay more for so-called active investments, which, of course, are controlled by managers who make the day-to-day decisions about the portfolios.
Earlier this year, RBC Direct Investing, the Royal Bank's discount brokerage, began offering actively managed funds at a much lower cost for those investors who choose its system. It was the first full-service brokerage to do so, but it may not be the last.
RBC had fallen behind the bank-owned online brokerage firms such as TD Waterhouse and CIBC in terms of low-cost funds, but it now offers 40 RBC mutual funds in what it calls its "series D."
"It was a significant development," says Mr. Hallett. "Not everyone's into indexing, so products like TD's E-series appeals to some, while the RBC D series appeals to others."
RBC says it has stripped the cost of advice from the funds that it normally sells through its bank branches and through investment advisers. When you're investing online, you're not paying an adviser for advice, and the logic is that you shouldn't have to pay for that advice.
Management fees on the series D funds range from 0.6 per cent to 1.25 per cent on funds that cost between 1.50 per cent and 1.85 per cent if they are sold through an investment adviser.
The 75 to 80 basis points a year can make a big difference when it's compounded over time, says RBC Action Direct's president, Doug Coulter.
There's a catch, though: Investors must have an account at RBC Direct Investing to buy the funds, and they have to make a minimum initial investment of $10,000 in each fund.
Self-directed investors may also find low-cost, actively managed mutual funds from providers who simply offer cheaper management fees, hoping to appeal to do-it-yourself investors.
Generally, these types of funds are offered by firms that provide institutional investment to large pension and endowment funds at a lower cost as well. But investors will usually find their minimum-investment requirements are higher than others.
Phillips, Hager & North Investment Management Ltd., for example, notes on its website the difference between MERs on its funds and the industry averages, as posted on GlobeFund.com. The most striking example: It charges 0.88-per-cent MER on the PH&N Balanced Fund, while the average Canadian balanced equity focus fund charges more than 2.7 per cent, or more than triple the cost.
Other firms in this category are: Mawer Investment Management Ltd., Beutel, Goodman & Company Ltd., Leith Wheeler Investment Counsel Ltd., Chou Associates Management Inc. and Saxon Mutual Funds.
Vancouver-based Steadyhand Investments Inc. launched more than a year ago, hoping to carve out a niche selling directly to investors. It features several funds with MERs ranging from 0.65 per cent to 1.7 per cent, much lower than the industry average. The firm also offers a further fee break of 5 per cent for investors who stay with it for five years, and another 14 per cent for 10 or more years.
"That's the sort of incentive that people need," says Mr. Hallett. "They've got good managers [at Steadyhand] so they're worth the look."
© 2007 The Globe and Mail. All rights reserved.
