TD e-Series Funds Review: Did a Good Thing Just Get Better?
For years, fee conscious investors have been able to rely on TD’s popular e-Series index funds, which have combined strong historical performance with very low MERs. More recently, however, other low-cost investments, like ETFs, readily available through robo-advisors and discount brokerages, have dominated the landscape.
With so much competition, one may wonder how TD’s index darlings have held up. They’re faring just fine in fact, even going through some structural changes as of late, in order to remain current. In this article, I’ll explain what TD e-Series funds are all about, who they’re best suited for, and what the recent changes mean for everyday investors.
What Are TD e-Series Funds?
TD e-Series funds are index mutual funds, meaning that they follow a passive investment strategy, and are designed to replicate the performance of an underlying stock market index. As an example, for many years, the Canadian equity holdings of TD e-Series funds have mirrored the S&P/TSX index. This is changing, but more on that in a moment. In other words, the returns of the TD e-Series funds will closely reflect the returns of the underlying index.
The TD e-Series Advantage
The major advantage of the TD e-Series is its low MER. The TD Canadian Index (tdb900) has a current MER of .33%. When compared with your typical actively traded equity mutual fund at over 2.00%, it represents huge savings in investment fees. TD e-Series has also become easier to hold inside your portfolio. They were once only available through TD, via either a discount brokerage account (TD Direct Investing), or you had to open a mutual fund account in a TD branch and convert the funds to TD e-Series after the fact.
Nowadays, you can purchase TD e-Series funds from any number of discount brokerages. So, if you happen to be a CIBC Investors Edge or RBC Direct Investing account holder, you can easily add TD e-Series funds to your portfolio. And, because they are a mutual fund product, there are no trading fees, making them incredibly inexpensive to purchase.
Upcoming Changes to TD e-Series Funds
As I alluded to earlier, TD recently announced a number of changes to their e-Series fund lineup. As far as I can tell, overall, the changes seem to be positive, with minimal impact to investors. Here’s a summary of what you can expect to see.
Fund holdings moving from individual stocks and bonds to TD ETFs
Up until now, the underlying holdings of TD e-Series funds have been individual stocks and bonds. Going forward, the switch will be made to hold TD ETFs instead. I suspect that this move is being made in large part to reduce costs, in order to keep pace with other industry-leading ETFs which are driving fees ever lower.
The underlying indexes are changing
Because TD ETFs track a different set of indexes, TD e-Series funds will now be aligned in the same fashion. The new benchmarks will be provided by the German firm, Solactive, which provides indexes for a number of other Canadian fund companies. The cost savings of moving to Solactive will be passed along to investors in the form of lower MERs. In the long run, the switch should have very little impact on fund performance. Here’s a look at how the benchmarks are changing, across all asset classes.
Bonds – Current benchmark is the FTSE Canada Universe Bond, moving to Solactive Broad Canadian Bond Universe
Canadian Equities – S&P/TSX Composite, moving to the Solactive Canada Broad Market
US Equities – S&P 500, moving to the Solactive U.S. Large Cap
International Equities – MCSI EAFE, moving to Solactive GBS Developed Markets ex North America Large & Mid Cap
TD e-Series funds are more accessible than ever before
TD didn’t come out and say it, but I will. As I alluded to earlier, TD has made their e-Series funds more readily available. In other words, you no longer have to open an account with TD to buy the funds. If you’re interested in TD e-Series, be sure to check with your preferred discount brokerage, to see if they’re available for purchase.
MERs are dropping
The switch to TD ETFs means that TD e-Series MERs will be dropping, which is great news. Currently, TD e-Series fund MERs range between .33% and .50%, and each will drop by approximately .05%. While these MERs remain higher than most large ETF funds, this price change means that TD e-Series funds remain a solid option. Here’s how the new MERs will look on four of the more popular TD e-Series funds:
- TD Canadian Bond Index (tdb909), new MER: .40%
- TD Canadian Index (tdb900), MER: .25%
- TD U.S. Index (tdb902), MER: .30%
- TD International Index (tdb911), MER: .40%
TD e-Series vs ETFs
You may be wondering about the difference between TD e-Series funds or ETFs, especially with the switch to TD ETFs as an underlying investment. For most investors, my preference remains to purchase ETFs directly, as the MERs are still lower than what’s offered by the TD e-Series funds. It’s not uncommon to see ETF MERs below .10%. Not only that, but you can purchase ETFs through a robo-advisor, or through any of the major discount brokerages, making them very easy to buy.
If the TD e-Series has one advantage, it’s that you won’t pay a commission to purchase or redeem units, providing that you’re outside of the early redemption window. Like individual stocks, many discount brokerages still charge a fee to purchase ETFs. I avoid this by holding my ETFs with Questrade, which offers no-fee ETF purchases.
If your account does charge a commission on ETFs, one trick to deal with this is to purchase TD e-Series units for free, then periodically transfer them to ETFs in larger, lump sums. It’s a technique used by many Canadian DIY investors.
TD e-Series Index Funds in Your Portfolio
If you’re interested in purchasing TD e-Series Funds, they may be the simplest way for someone to build a diversified portfolio with low Management Expense Ratios (MERs). For starters, these funds come with no additional setup fees or commissions. The bottom line? Lower fees, resulting in better real returns over time.
Using index funds like the TD e-Series is also a great way to gain instant portfolio diversity. Worrying about whether or not you are picking the right stock can be stressful, and market volatility can make it even more stressful over time. Funds, especially those tied to an index, can give you peace of mind knowing that you are linked to the overall performance of that index. In the long run, you are likely to build wealth. There’s no need to worry about day to day market volatility.
How to Purchase TD e-Series Funds
The easiest way to buy TD e-Series funds is with a discount brokerage account, either through TD, or another provider. If you already have an account, it’s as easy as selecting the fund, and making the purchase, with no trading fees. Depending on where you hold your account, there may be a minimum purchase amount. You can also open a TD e-Series account in 6 easy steps by going to a TD Canada Trust Branch, and meeting with an Investment Representative. Here’s how that process works:
- Let the advisor know that you wish to open a TD Mutual fund account.
- The advisor will lead you through a questionnaire, called a Customer Information Profile.
- Fill out and sign the new account application.
- Arrange to make pre-authorized contributions directly from your bank account (a void cheque may be required).
- Request that your account be converted to a TD e-Series account.
- Upon receipt of confirmation, access your TD E-Series account online, through TD Easyweb.
As you can see, there’s a bit of effort to invest in TD e-Series funds through a TD branch, but it might be worth it. Even with the advent of ETF investing, index funds like the TD e-Series are still a great way to create a cost-efficient, and effective, investment portfolio.
Remember to Rebalance Your Portfolio
Even if you’re investing in index funds, your portfolio can begin to drift. Because of the way that funds operate, not to mention shifting market conditions, you might end up with more shares of one fund than another. This can bring your portfolio out of balance, and result in sub-par performance.
In order to get back on track, you should rebalance your portfolio back to its original asset mix at least once per year. Look at your portfolio, and determine your next course of action. If you have a certain amount of new money available to invest, put it into the underperforming funds to bring them back up to the proper allocation.
If you lack the funds needed to re-balance, you can sell some shares of the better performing funds and then put the proceeds into the others. Rebalancing this way forces you to buy low and sell high, which is the preferred strategy when you invest.
Final Thoughts on TD e-Series
My feelings on TD e-Series Funds haven’t changed. I’d recommend them as a solid indexing option to any passive investor. And with the recent updates, it feels as though a good thing has gotten even better. But nowadays, index investors have other alternatives to choose from, such as Wealthsimple or Tangerine Funds. Of course, my personal preference happens to be ETFs, as long as they can be purchased free of charge. My advice, do your research and choose the investment option that is best suited for you. The most important thing is to invest, period.
How would you compare these index funds to the similiar ishares ones?
iShares have lower MERs, but you have commission fees to pay to a broker since they are bought like stocks. The e-Series funds have slightly higher MER, but no cost to purchase.
If your making small, automatic, bi-weekly or monthly purchases then you’ll likely be better off with the e-Series. If you’re looking to invest more money at once, then look into buying iShares.
What are your thoughts on the tax advantages of ETF versus say these e-funds. I think the e-series funds are based on derivitives, which I really do not understand.
I’m not positive, but I don’t think there is a difference tax-wise. They both hold the underlying stocks with minimal selling that would trigger capital gains. However, I’ve never seen a tax consequence personally as I have my e-Series funds in my RRSP.
Is it just me or is the TD e-series that tracks the U.S S&P 500 woefully inept? If you look at the vanguard VFINX which supposedly tracks the index in a similar fashion, the e-series seriously underperformed. Am I missing something?
I would really like an answer to his question. I’m about to open a TD brokerage discount account so I can invest some of my savings into TD e-series funds. However, this is the first time I hear something negative about these funds that I want to know more.
If you are comparing the TD US index in $CAD to the vanguard ETF in $US, then u get all the currency fluctuations tossed in. The TD US index-e currency neutral does a very good job of following the S&P500.
I have E-series myself and I set it up to automatically deduct a certain amount (e.g. $200) per month from my savings account. I then split the $200 into the allocation according to my risk profile (e.g. $50 goes into Canadian Index and $25 to Bonds). That way, I don’t have to worry about rebalancing.
Great article Tom!
Kyle:What was your reasoning for going with TD-series instead of buying your own ETFs? You’re obviously knowledgeable enough to buy ETFs instead to get the lower fees, so what was it that still made you choose TD-series? It would be great to hear your reasoning.
Do TD e series mutual funds make sense for a taxable account? Or ETF’s a better choice?
Does anyone know if converting a TFSA from an Investor Series Account into an e-Series account, would trigger a withdrawal/purchase?
It should not trigger a withdrawal/purchase. This is a ‘qualifying transfer’. Read about it here: http://www.moneysmartsblog.com/tfsa-over-contribution-penalty-fix/
I am absolute beginner who has 5K set aside to invest. Today I almost end up opening account with Questrade and than I found couple of articles similar to this one that gives advises to all beginners with small amount of money to invest in e Series. Any body who doesn’t share the same opinion and thinks that opening account with Questrade would be better or buying e Series would be best solution for me.
It’s a tough call now Jozo. A couple years ago I would have definitely said TD e-Series for the low cost, especially for monthly contributions.
But recently Questrade stopped charging transaction fees to purchase ETFs. With the lower MERs on ETFs, they are looking like the better option now, and you can still do a similar simple portfolio to what I have in the post above.
Tom thank you very much for your advise. Although there is no transaction fees with Questrade I think it would be safer for me to go with TD e Series. After reading many different articles and blogs people mostly agree that with smaller amount money its better to start with e Series. Eventually when you gain more knowledge and have more money available to invest you may open account with lets say Questrade and start trading independently.
I know that with all your experience it is easy for you to say that I can set up similar portfolio to what you have posted in your article, for me it means that I should read many more articles maybe some book as well to be sure what exact ETFs to choose to make similar portfolio without dreading after I buy them.
I would appreciate and I hope is not to much if I ask you to specify some ETFs that would make similar portfolio to one from text above.
You could use this simple model ETF portfolio (option 3) on this webpage: http://canadiancouchpotato.com/model-portfolios-2/
There is another good model ETF portfolio (step 2) on this webpage: http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/
I would suggest the first portfolio to keep things simple, but I would prefer the second for somebody that ha no more room in registered accounts so some tax optimization could be made. Don’t worry about tax optimization if you still have room in your RRSP and TFSA.
I’m trying to choose between TD e-series or Questrade ETFs for an RESP.
I’ll be investing $10K to start and then $250 per month going forward.
How often do you think I will end up selling to rebalance?
Would TD e-series or Questrade ETFs have lower overall fees? Thank you.
Regarding the re-balancing of the e-series portfolio, I have lost track in last year or so. How can I bring it back to what it originally was? Mine was 40 bonds, and 20 CDN, US and Int’l equities. Your expert advise would be much appreciated.
You have to do the math yourself as the numbers will be different for most peoples.
You could take a look at this free tool (Excel): http://www.moneysense.ca/invest/portfolio-rebalancing-tool/
I am a non-resident of Canada but a Canadian Citizen.
I cannot change my portfolio as a non-resident.
I own The Fundsmart Managed Income + The Income Advantage Portfolios.
“One of the ways that you are likely to lose out in terms of real returns is through fees. When you pay high fees, you end up seeing lower returns. These lower returns are then compounded by the fact that the money you pay in fees not only directly reduces what you receive, but over time that money that could have been invested instead isn’t earning compound interest.”
This is not necessarily the case. Your performance depends entirely on what you’re invested in. Low fees do not guarantee greater performance. Due diligence is a must!
Exactly, I’m an independent financial adivsor. If you are making 8% ROI and paying a MER fee of 2.4% that is a lot better than making 3% but only paying .42% MER fees. A lot of the fund companies show their data net of MER fees. That means you will get the whole 8%.
Study the Law of 72. See how long it will take your money to double.
Also, it is also important that you make a higher return over inflation.
You’d have to be inept to be picking an index fund at 0.42% MER and only getting a 3% average compounded return. Index investing has been far and wide proven to beat active portfolio management not only in fees, but in returns.
Saying that you’d prefer higher returns with higher fees than low returns and low fees is a classic sales tactic that instantly identifies to me an advisor who hasn’t put in the research
Vanguard and BMO ETF’s are generally better choices than TD as fees are lower in the Vanguard case and the range is much broader in BMO’s. TD receive trailers on all there mutual funds including their HISA. At this stage having a Cdn.$ hedge is a very bad choice.
Definitely not sponsored Steve, I don’t even have an affiliate relationship with TD. The majority of my own RRSP is in TD e-Series, so I wanted to let the readers of CFB know this option is available.
If it was sponsored, I would have stated it. However, I can’t follow your suggestion of stating what posts are NOT sponsored as that’s 99% (probably more) of the articles here.
Low cost fund investing is the only way to go. You will come out WAY ahead after 20-50 years of investing versus going with actively traded funds. I was getting “fee’d to death” until I started to understand more about this important concept.
That is an assumption. Yes you will be way ahead with regard to paying less fees but you won’t necessarily have outperformed an actively managed fund. Low cost fund investing may be the only way to go for you. That’s great! One should invest in what they’re most comfortable with. My choice is dividend growth investing in stocks which I’ve practiced DIY since mid 2008. My fees are only the commissions I pay when I buy or sell a stock. This is my way to go.
I just opened a TD Waterhouse account for my TFSA because it has no annual fee, but decided to open a E series account for my daughters RESP accounts and my RRSP. I am fairly new to the world of investing and thought that would be a safe bet if following couch potato portfolio choices until I reach the minimum investment levels at which point I hope to move everything into the Waterhouse account. Does this make sense, or would it make more sense to go directly to waterhouse for all the accounts to have a broader choice in investments from the beginning?
Just called TD because webbroker was showing that I lost more than I actually did. One thing to keep in mind with the TD Webbroker is that the average cost per share in your holdings will be higher than the cost you actually bought them at because it factors in the price you need to sell at to cover commissions. So don’t worry if the price is higher than your actual cost basis.
Like a lot of the people reading this blog, I too am trying to decide if I should go e-series index funds or Questrade eTF’s. Maybe you can answer a different question – I have a locked in RRSP with a big bank ($50k), paying high fees. Would it be wise to move the locked in RRSP to Questrade and purchase ETF’s? I’m hesitant to do this due to the fact that I can’t add more money to the RRSP’s and continue to build them.
I am looking at investing $100,000 inside a RRSP that won’t need to be collapsed into a RIF for 10 years into TD Series E funds with a conservative or cautious weighting, but won’t need to draw on this money for at least 10 years. Is the Couch Potato “cautious” weighing of 55% (TD Bond Index Fund – TDB909) and the remaining amount at 15% each in TD Can Index, US Index, and TD International (TDB900, TDB902, and TDB911) still a good choice. Other ideas. Already on TD self directing and switching out of individual stocks. Any suggestions would be helpful. Thanks
Tom. I’m already invested with td but only in financial gics and growth balanced mural funds. The gics are earning about 3.5% yearly and the mutual fund has under performed I think. Plus the fee is 2% I believe. Would it be better for me to try e series with my rrsps and tfsa investments? I’m almost 57 and I am hoping I can earned a bit more money before I have to retire. I’ve been playing catch up for 10 years do to circumstances. Hope you can help
Does anyone know the cost and procedure to switch mutual funds from a td rrsp to a self directed
I’m confused about why TD e series are highly recommended. I was about to move my funds from my advisor to TD and did a real scanario with my funds to compare real returns over the last 8 years. My real avg. rate of return with my advisor is 6% but 3 of the TD funds are sitting at the 4% range for the last 10 years so I would have made less money even with lower fees. I am missing something?
You need to stop focusing on picking “winning funds” and start focusing on owning the entire stock market through Index investing.
An advisor will easily highlight which funds are “hot”, but as investors we know that we want to be buying low and selling high, and underperforming indexes, as long as they are tracked properly to a broad index, will not underperform forever.
When you rebalance your portfolio annually you are looking to sell your winners and buy the lower funds for just this reason, buy low and sell high, and we know that these equity linked indexs will bounce back. It takes discipline, but avoiding the stock market during a crash is the opposite behavior of a successful investor.
I have two children (17,14) who are interested in stock market investing and they are both already TD customers. Is it possible that they both start a TD series investment portfolio given their ages?
I came across couch potato 12 years ago and opened Td e-series accounts – TFSA, RRSP and savings.The td series have been good for me as I set up weekly direct debits, check on the accounts once a month, but otherwise don’t think about them. I have limited knowledge of investments. Current total value 437K (deposited 310K) I have advice to move to ETFs and to purchase stocks instead, but am not convinced there is anything wrong with TD e series or that I would I see a huge difference in rate of return if I switched. Is there something I am missing? or can I continue to contribute to the TD e-series accounts? Thank you.
How do you transfer TD – eSeries Index Mutual Funds to ETF indexed Funds? Does it involve a sale and subsequent re-buying, or is there another way that does not involve more expenses? Thanks. Les
what is an e-series account? I thought e-series is just the type of mutual fund you purchase. And TD now has a Goalasisst account which trades their TD etfs for free. What are your thoughts on the Goalasisst vs TDDI vs e-series?
Seems the conversion to ETFs never happened. Do you have any news?
“If your account does charge a commission on ETFs, one trick to deal with this is to purchase TD e-Series units for free, then periodically transfer them to ETFs in larger, lump sums. It’s a technique used by many Canadian DIY investors.”
Exactly how is this done? Someone please explain, thanks.