ING Direct Canada has launched its Streetwise Fund:
ING DIRECT is once again challenging the high fees Canadians pay for investing and bringing diversification at a low cost to the masses with the launch of a new index-based mutual fund called the Streetwise Fund. The Streetwise Fund is a diversified balanced fund which incorporates several indexes in its investment strategy.
The selling feature is that retail investors can get low cost–the MER is 1%–diversification even if they have relatively small portfolios. This last point is relevant because many online brokerages still charge $29 per trade for small accounts (although the trend seems to be $9.95 pricing).
But is the Streetwise Fund’s 1% MER really low cost? The answer is no. Can you replicate it yourself for less using Index ETFs? The answer is yes.
Here’s an example assuming a portfolio of less than $6,000 (trying to keep equal weighting between the four indices):
| TICKER | PRICE | SHARES | COST |
| XIU | $77.45 | 20 | $1,549 |
| XBB | $29.00 | 50 | $1,450 |
| IVV | $138.00 | 10 | $1,380 |
| VEA | $44.41 | 30 | $1,332 |
| TOTAL | $5,711 |
This portfolio offers the same exposures as the Streetwise Fund: S&P/TSX 60, DEX Universe Bond Index, S&P 500, and MSCI EAFE.
The weighted average MER of these ETFs is about 0.18%. Even if you were charged $29 per trade, trading fees would be equivalent to about 0.41% over 5 years (4 trades x ($29 / $5711) / 5 yrs)* for a total cost of 0.59% per year–or 0.41% lower than the Streetwise Fund!
Other blogger coverage of the Streetwise Fund:
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*Or equivalent to 0.50% if you annuitize it over 5 years assuming a 7% discount rate.
7 responses so far ↓
1 J Smith // Jan 21, 2008 at 11:35 am
I think that even if this is true, people are willing to pay a bit to have someone else do the investing. If I want to invest a little each paycheque, it’s going to be a lot harder than if I just let ING do it for me.
2 fox // Jan 27, 2008 at 12:45 am
I agree. The ING funds are not really low cost. Albeit, I am happy to see more choice in index funds. Thanks for the link!
3 Bri // Feb 1, 2008 at 8:33 pm
I’m with J. Smith on this one. I’ve been stuck with Quadrus/London Life for years paying nearly 3%, so the ING fund looks damned appealing right now. I’ve tried to become more educated over the last year or so to try and head in a new direction, but I wanted something to appeal to my couch potato tendencies. The MER at ING might still be “high” to some people, but compared to the average that MOST Canadians are still paying, it seems like a viable alternative, even if you just want to use it for the short term while learning about other options or building up your bravery factor (I’m comfortable with high risk, but I’m NOT comfortable playing on my own right now). Just a few thoughts. As “J” says, some of us can only throw a little aside from our paycheques each month. We WANT to keep things simple, but pay a REASONABLY low MER to still have someone else do the work, and I can’t imagine ING not being in this for the long run.
4 investskeptically // Feb 2, 2008 at 3:49 pm
J Smith: Good point — letting you invest a little bit every pay cheque is definitely a nice benefit.
Bri: I understand that many people want to pay someone else to do all the work but, while you’re doing that, it’s important to remember that the amount of fees you pay over the long run is HUGE. My point with this specific piece is that with the Streetwise product, you’re not even getting anything proprietary and it’s quite easy to recreate the product yourself.
Thanks for the comments!
5 cameron // Feb 9, 2008 at 12:50 pm
Has anyone found a chart for these streetwise funds?
6 Bri // Feb 13, 2008 at 10:09 pm
Thanks for the feedback. When I wrote my last post, I was leaning more in the direction of TD’s e-series anyways. Still am.
Problem is with my present advisor. Naturally, he’s not keen on me switching everything to e-series when the MER on his funds is so much higher. Of course, like most books I’ve read predicted, he pulled the old “you don’t trust my advice” routine, but I still need to do this switch for my own piece of mind. He tells of people he knows who regularly beat the market (not people I can use, of course, nor people he’d ever encourage me to use; he just wants me to think he’s in the same league), but reluctantly agreed with me that NO advisor can do it consistently over time. I hate being put on guilt trips, but I know it’s time to switch to something else.
The ING news really caught my attention more for the fact that they were actually simplifying the whole procedure for the average Canadian like myself than for their particularly low rates. I honestly think most managers try to keep things muddled with clients with limited knowledge like myself, while claiming they’re speaking “to” us.
The ING and E-series hold appeal because both seem like I could handle them myself, pay a lower fee than I am now, and still have someone working behind the scenes). Unfortunately, to avoid hefty transfer fees, I’m switching WITHIN Quadrus for the moment, and then hopefully later I can switch completely over to TD once all the money’s in their funds.
Such a learning curve even though I’ve been investing for over a decade (with active management, sadly), but having these other products on the market has certainly motivated me more in recent months than anything has for the past decade.
Bri
7 hoser // Feb 25, 2008 at 9:07 pm
I just talked to ING and they told me that it was against the law to report any performance data(track the fund) until it was at least 1 yr old. That is why you won’t see it listed in the paper or on their website. I asked if I could track it on my own website, as help for others, and he told me that this would be illegal. The one thing he did say is that all 3 funds started at $10 on Jan 2.
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