ING’s Streetwise Fund v. TD e-Series

The humble Global Couch Potato portfolio, first recommended by MoneySense eight years ago, is an excellent way to get started with indexing. So when ING Direct launched its Streetwise Balanced Fund in 2008, I thought it would be perfect for new investors, since it’s a single fund with the same target allocation: 40% Canadian bonds and […]



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The humble Global Couch Potato portfolio, first recommended by MoneySense eight years ago, is an excellent way to get started with indexing. So when ING Direct launched its Streetwise Balanced Fund in 2008, I thought it would be perfect for new investors, since it’s a single fund with the same target allocation: 40% Canadian bonds and 60% equities, divided equally between Canadian, US and international.

The one problem with the Streetwise Funds was cost: with an original MER of 1% (now 1.07% with HST added) they were more expensive than I would have liked. After all, banks already offered index mutual funds with fees in that neighbourhood, and the TD e-Series Funds are dramatically cheaper: you can build the Global Couch Potato for a total cost of just 0.37%.

But four years after the launch of the Streetwise Balanced Fund, it’s worth taking a closer look at how it fared in comparison with the with TD e-Series. Here are the returns:

TD e-Series Streetwise
2008 -14.22% -14.13%
2009 12.00% 10.72%
2010 8.02% 6.52%
2011 0.68% 0.30%
Annual 1.10% 0.40%

As you can see, the Streetwise Balanced Fund underperformed the TD e-Series by 70 basis points annually, which is exactly the difference in MER. But that’s not the whole story. Dig a little deeper and you’ll see that ING Direct’s simple index fund actually fared better than you would think at first blush.

It turns out that almost half of the performance lag can be explained not by cost, but by a subtle difference in asset allocation. The Canadian equity component of the Streetwise Balanced Fund is pegged to the S&P/TSX 60 Index, which includes large-cap stocks only. The TD Canadian Index Fund, on the other hand, tracks the S&P/TSX Composite Index, which includes mid and small caps as well. In each of the last three years, the latter index has outperformed—in both 2009 and 2010 the excess return was well over 3%.

To make a fairer comparison, I re-ran the performance numbers on the Global Couch Potato substituting the Altamira Canadian Index Fund, which tracks the S&P/TSX 60. This time the four-year annualized return fell to 0.81%, resulting in a lag of just 41 basis points for the Streetwise Balanced Fund. For every $1,000 invested, 41 basis points is $4.10 a year.

Notice that the Streetwise Balanced Fund slightly outperformed the Global Couch Potato in 2008: that’s because large caps did better in Canada that year—in fact, they trumped the overall market from 2004 through 2008. Had ING Direct launched its fund in 2004, it likely would have beat the Global Couch Potato over its first five years.

It’s also worth recognizing the Streetwise Balanced Fund’s relatively low tracking error. According to its Management Report of Fund Performance, since its inception four years ago, the fund’s 0.40% annualized return compares with a blended benchmark return of 1.13%. That’s a tracking error of 73 basis points, which is much lower than you would expect from a fund that has an MER of 1.07%, and it closes some of the gap between the Streetwise and TD e-Series funds.

An ideal first step

There’s no question that an experienced index investor can build an ETF portfolio that is far more diversified and much cheaper than the Streetwise Funds, and the TD e-Series are still my first choice for Couch Potatoes who want to use mutual funds. But there is a lot to be said for ING Direct’s simple solution. Unlike TD, which has actively discouraged investors from investing in their index funds, ING Direct makes it extremely easy to open an account, never charges account fees, and imposes no minimum balance, so you can start from zero. And because you’re dealing with one fund instead of four, you can make a single monthly contribution and ignore rebalancing, since that’s done automatically every quarter.

Based on the emails I receive, new index investors face two main obstacles. The first is philosophical: they need to move past the idea that successful investing is about picking the right securities and identifying the “right time” to get in or out of the markets. The second is practical: they need to build a diversified portfolio without incurring fees and transaction costs that will eat up their small account. The Streetwise Funds solve all of these problems. Would I recommend them to someone with investing experience and $50,000? Probably not. But they’re an ideal first step in a lifelong investing plan based on low cost, global diversification, and smart behaviour, and a reminder why MERs are not the whole story.

Disclosure: A member of my household has a small holding in the Streetwise Balanced Growth Fund.

3 comments on “ING’s Streetwise Fund v. TD e-Series

  1. Just a note about TD "actively" discouraging investors. A couple of months ago I opened an account online with TD Waterhouse brokerage and I really didn't find any of it to be too bad. I didn't go into a branch or anything, just did it all online. I had a follow up phone call from them and then even a couple more that did get annoying because they were asking if I'd sent in all of the identification documents they require. But I live on the west coast in a small community so it would be taking upwards of a week or more for something to get to Toronto. But really, it's not hard to do. There is so much in the MoneySense guide about how difficult it is to get an account etc I was bracing myself but it was OK.


  2. Following up CMH's comment, I too had little to no trouble opening a TD Waterhouse account. I visited a branch in person and it took less than half an hour for a TD rep to fill in details electronically and take copies of my ID. I had to phone TD Waterhouse to activate the "Web Broker" portion of my online access but, again, that was painless.

    I would in fact suggest those who are initially uncomfortable with setting up an account online simply visit a branch and ask them specifically for a TD Waterhouse account or accounts.


  3. My experience opening a Waterhouse account was one of those frustrating ones that MoneySense is talking about. It was a hassle. This from someone whose spouse works at TD Western CAS! We attempted to open the account using the online application but we were blocked because I guess I answered one of six or so security questions incorrectly. So we had to fill out a paper application and mail it to Toronto. When we got a reply several weeks later they account was not yet opened and the letter was requesting additional information. Feeling frustrated with the 4 week delay so far we decided to go into the Edmonton main branch. Can we open a Waterhouse account? 'Oh no not now, you need an appointment'. Another week goes by. We go to the appointment. We request a Waterhouse WebBroker account. Immediate reaction of the rep at TD was disappointment. He tries to steer us towards lots of high MER managed products. Wants to check our 'investor profile'. No thanks I say, we would like a WebBroker account. Silence. He sighs. OK fine. But look at this fund it has the best indicators, its a monthly income fund. You should get this too. Feeling pressured we make the concession and add the monthly income product to the mix. We leave with a confirmation number and instructions on activating the WebBroker account via telephone in a few days. Five and a half weeks later we get the account. Now that's frustrating! The Monthly Income fund is doing OK but in hind sight recognize the level of manipulation that was going on is exactly why I have zero trust in bank financial advisers. Now that we have the account we can dump the monthly income fund and put it where we want to (a soon to be complete Global Couch Potato) once the minimum 90 day holding period is over.


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