TD e-Series funds are popular holdings in many low-cost portfolios because the funds’ MERs are among the lowest for index mutual funds in Canada. We too own TD e-Series funds in our kids’ RESP accounts because, as I noted in earlier posts, these mutual funds are ideal for relatively smaller portfolios. However, I’ve never paid much attention to the tracking error of e-Series funds even though how well a fund tracks its benchmark is an important criterion in picking an index fund. After a recent note from a reader, who noticed a large tracking error in the TD International Index Fund for 2009, I decided to examine the tracking error in e-Series funds.
TD e-Series Canadian Bond Index Fund (TDB909)
The TD e-Series Canadian Bond Index Fund, which tracks the DEX Universe Bond Index, is a popular pick for the fixed-income component of a portfolio. It sports a MER of 0.48% but it’s tracking error averages 0.62% over the 2004-2009 period.
| Year | Bond Index | TDB909 | Difference |
|---|---|---|---|
| 2004 | 7.1% | 6.5% | 0.6% |
| 2005 | 6.5% | 5.7% | 0.8% |
| 2006 | 4.1% | 3.6% | 0.5% |
| 2007 | 3.7% | 3.2% | 0.5% |
| 2008 | 6.4% | 5.7% | 0.7% |
| 2009 | 5.4% | 4.6% | 0.8% |
TD e-Series Canadian Index Fund (TDB900)
The TD e-Series Canadian Index Fund has a MER of just 0.31%. The tracking error averages just 0.30% and the fund tracks the index fairly well as you can see from the table below.
| Year | Canadian Index | TDB900 | Difference |
|---|---|---|---|
| 2004 | 14.5% | 14.0% | 0.44% |
| 2005 | 24.1% | 23.3% | 0.64% |
| 2006 | 17.3% | 16.9% | 0.34% |
| 2007 | 9.8% | 9.6% | 0.18% |
| 2008 | -33.0% | -32.9% | -0.15% |
| 2009 | 35.1% | 34.6% | 0.37% |
Both TDB909 and TDB900 track their benchmarks reasonably well but the Canadian Bond Index does have a larger than expected tracking error. Tomorrow, we’ll take a look at the tracking error in TD e-Series US Index (TDB902) and the TD e-Series International Index (TDB911).
Note: Benchmark returns were obtained from the Libra Investments website.
