Anti-bank rivals offer interesting choices

February 7 2008 by Ellen Roseman

ING Direct is known for high-interest savings accounts and low-interest mortgages. But it’s never made much of an impact with mutual funds, despite previous attempts to launch its own funds and distribute other funds.

So, ING has hopped onto the bandwagon of index funds and introduced its own version of the couch potato portfolio. The Streetwise Fund lets you bundle index funds together into a portfolio that suits you. The balanced fund, for example, is 40 per cent Canadian bonds, 20 per cent Canadian stocks, 20 per cent U.S. stocks and 20 per cent international stocks.

You can almost hear the conspiratorial whisper when you read ING’s advertising slogan, “the mutual fund ‘they’ don’t want you to know about.” You read about the high cost of everyone else’s actively managed funds, but you don’t see any reference to the cost of the passively managed Streetwise Fund.

Only when you read the 32-page prospectus do you find the MER is 1 per cent a year. That covers 0.8 per cent management fees and 0.2 per cent operating expenses. If you’re familiar with index funds, you’ll realize this is more expensive than other products.

I found a great discussion at the Financial Webring Forum. The conclusion seems to be it’s worth the cost if you’re a beginning investor who wants a no-hassle portfolio. Yes, you can bundle a few index funds together and pay about half of the Streetwise MER, but you have to keep track of them all and rebalance each year. As for exchange-traded funds, they’re definitely cheaper. But you have to pay trading commissions, which can really add up if you’re contributing a small amount each month.

So I think ING is on the right track with this product. But when the company says, “it’s about time you were given the straight goods when it comes to investing,” I wish its online promotion was more up front about disclosing and comparing costs.

Capital One is known for its “hands in your pocket” TV ads promoting credit cards. The latest Platinum MasterCard deserves attention. It’s billed as Canada’s lowest long term rate, not an introductory rate, at prime plus 0.9 per cent on purchases and balance transfers and no annual fee.

Canada’s prime rate is now 5.75 per cent, which makes the MasterCard rate 6.65 per cent. That’s definitely way below anything I’ve seen. The catch is that you need “excellent credit” to apply and be accepted.

So, what’s excellent credit? The U.S. spokeswoman said this:

You’ve had open credit such as a credit card, loan or line of credit for more than three years.

You’ve had no bankruptcies and no defaults on credit as a result of failing to pay debts back to creditors.

You have not been declined for credit more than once in the last six months.

You’ve made all your payments on your existing credit on time in the past six months.

The low rate never runs out, but you only get to keep it if you’re a prompt payer. You may find your rate bumped up to double-digit range if you’re more than 10 days late twice within a six-month period. However, you can have your prime plus 0.9 per cent rate restored if you pay on time for nine months in a row after you slip.

Monty Loree, who offers the new Capital One card at his Canadian Money Advisor blog, gave me a rundown of the best rates on credit cards in Canada.

MBNA Platinum at 14.99% – No Annual Fee

Scotia Value Visa – Fully secured 9.40% – (This card is secured against assets) – $29 Annual Fee

Scotia Value Visa – Non-secured 11.40% – $29 Annual Fee

TD Emerald – Prime+1.9% – Prime +6.9% – $25 annual fee

CIBC Select Visa 11.5% – $29 Annual Fee

National Bank of Canada – Prime +4% – $35 Annual Fee

CitiBank Silver Low Fee Card – 9.9% interest – $29 annual fee
(I called into customer service to get their lowest interest rate card.)

As a rule, to get the lower interest rates, you’re either going to need a very good credit score with Equifax and/or TransUnion or you’ll have to secure the credit card.

The American credit card companies that do business in Canada seem to be more aggressive with their rates.

It’s best to get the permanent low interest rate cards. The introductory rates are a hook to attract people. The companies are obviously interested in getting the customer to stick around and pay the higher interest rates.

9 comments

  1. brad

    Feb 7 2008

    Yeah, I don’t see how the Streetwise Fund could compete with TD’s eFunds. The TD Canadian Index eFund has an MER of 0.31%, and its US Index eFund has an MER of 0.33%. It’s just as easy to set up and contribute to one of those as it would be to do so with a Streetwise Fund. I’d like to see a list of the lowest-MER funds, similar to the list you provide above for credit cards. Is there something like that available somewhere?

    By the way, the Streetwise Fund is not available in Quebec, at least not yet.

  2. bylo

    Feb 7 2008

    I don’t see how the Streetwise Fund could compete with TD’s eFunds.

    That’s not what Streetwise portfolios compete with. They compete with TDAM’s Managed Index Portfolios e-Series whose MERs are 25 to 50 bp higher.

    I’d like to see a list of the lowest-MER funds, similar to the list you provide above for credit cards.

    Low-MER, No-Load Index Funds Available in Canada

  3. bylo

    Feb 7 2008

    Also, speaking of “The balanced fund, for example, is 40 per cent Canadian bonds, 20 per cent Canadian stocks, 20 per cent U.S. stocks and 20 per cent international stocks.”

    Performance of Indexed vs Actively-Managed Portfolios for 15 years ending 31Dec06 (and soon 31Dec07.)

  4. squawkfox

    Feb 7 2008

    As an TD eFunds investor, I am very happy to see ING Direct venturing into the index fund space. I hope ING’s Streetwise campaign can shine some light on the insane MERs we pay in Canada, and consequently educate Canadians to “move their money” to less expensive investments.

    I am constantly amazed at how few of my friends even know what a MER is or what this fee does to their investments.

  5. Brian Poncelet, CFP

    Feb 10 2008

    Hi Ellen,

    The Streetwise fund seems to be interesting for the DIY crowd, but the foreign content is not hedged in Canadian dollars. This is not talked about much. If I look at the balanced fund for example, it has 20% in US stocks and 20% in international. If this was sold last year, based on the Canadian dollar strength, this would be a problem. If you believe, as Warren Buffett does, that the loonie will be stronger in five years than it is now, this will eat into your returns.

    MERs are important for investors. Rob Carrick wrote a story about some funds that had low volatility and good performance during bad times in the market. Good funds are out there, but there are a lot of poor funds with high fees.

    Regards,

    Brian

  6. CanadianInvestor

    Feb 11 2008

    There are also the funds of Dimensional Fund Advisors described at http://www.ifacanada.com/ whose fees total 1.2-1.7%. They claim that their higher fees are offset by lower tracking error of 0.75 to 1.5% a year, securities lending revenue and higher return portfolios. Their data looks pretty impressive.

  7. 23 year old canadian

    Mar 13 2008

    I just got offered the Capital One Prime plus 0.9% and I’m only 23! I’ve have my first credit card since I was 18.

  8. T D

    Mar 18 2008

    With the ongoing crisis in financial markets, the smart investment is gold. It has historically been the investment of choice in times of uncertainty, and this is for a reason. It’s one of the safest investments to be found and stable over time, relative to other investments.

    The faltering US economy is going to have a ripple effect throughout the world. The 300 million consumer market that buys so many foreign-made goods becomes questionable. Not to mention international conflict that wreaks havoc on markets.

    Are we allowed to talk about China anymore? Nations are being made to look like fools for their coddling the developing status of China and the embarassing handling of the Olympics.

    Gold has been following oil prices, but now with oil dropping, gold stands out as the reliable investment. With the lucrative oil returns slowing, gold offers the safe return.

  9. Mark Cleenser

    Mar 18 2008

    CNN international is baffling people by saying that the recent reduction in interest rates by the US Fed will keep the stock markets down. This is in contrast to traditional economics. where reduced interest rates move people away from interest-generating investments toward the markets. When the market is too hot, interest rates are raised to cool investment down.

    The US economy is hardly hot now, so a reduction in rates should move people to the markets, especially gold, but CNN International doesnt mention this!