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.
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.
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).