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CIBC Index Mutual Funds

February 19th, 2009 · 17 Comments

At first glance, index mutual funds available from CIBC sport expenses that are a bit on the high side. Unlike TD e-Series funds, which charge MERs ranging from 0.31 to 0.48, CIBC’s index funds charge MERs that are about 1%. But as a reader pointed out the other day, CIBC offers a management fee distribution discount of 0.63% for investors who hold more than $150,000 in their index mutual funds. Investors with more than $500,000 in CIBC index funds can get a discount of 0.68%. According to CIBC the discount “is calculated and accrued daily and distributed to investors as a special distribution that is reinvested in additional units of the relevant Fund on a quarterly basis”.

Apart from the MER rebate, CIBC index funds are interesting because the line up includes funds, which track indices, that are not available through TD e-Series funds or Altamira Precision Series funds:

  1. CIBC Canadian Short-Term Bond Fund (CIB489, MER 1.25%) tracks the DEX Short-Term Bond Index.
  2. CIBC Canadian Bond Index Fund (CIB503, MER 1.0%) tracks the DEX Universe Bond Index.
  3. CIBC Canadian Index Fund (CIB300, MER 1.0%) tracks the S&P/TSX Composite Index
  4. CIBC US Broad Market Index Fund (CIB484, MER 1.0%) tracks the Dow Jones Wilshire 5000 index and provides a one-stop exposure to the entire US stock market.
  5. CIBC International Index Fund (CIB510, MER 1.0%) tracks the MSCI EAFE Index, which provides exposure to Europe, Japan and Australia.
  6. CIBC Emerging Markets Index Fund (CIB519, MER 1.2%) tracks the MSCI Emerging Markets Index.

Note that the MERs were obtained from the latest prospectus and do not include discounts that may be applicable. CIBC also has index funds tracking global bonds, the S&P 500, Europe, Japan, Asia-Pacific markets and a balanced index fund. CIBC’s index funds are also available through PC Financial, which offers a rebate of 10 basis points. A comparison of no-load, low-MER index mutual funds is available on Bylo’s website.

Though CIBC’s mutual funds are interesting, passive investors can do better elsewhere. Investors with smaller portfolios will find TD e-Series funds significantly cheaper and those with larger portfolios will find ETFs far cheaper even after accounting for trading commissions.

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17 responses so far ↓

  • 1 Doug // Feb 19, 2009 at 1:06 pm

    One feature of CIBC index funds is that they aren’t currency hedged. Barclays S&P500 and EAFE funds are currency hedged.

  • 2 Doug // Feb 19, 2009 at 1:22 pm

    Barclays EAFE ETF has an MER of 0.49%. With the discount, CIBC EAFE MF has an MER of 0.37%

  • 3 Canadian Capitalist // Feb 19, 2009 at 1:51 pm

    Doug: Fair enough. I’d question the advantage of hedging for EAFE markets because it is a basket of currencies. A true comparison for CIBC International Index Fund would be EFA or Vanguard Europe Pacific ETF (VEA). VEA’s MER is a mere 0.12%.

  • 4 bob // Feb 19, 2009 at 3:10 pm

    hi,

    i am not sure how to reach you..so i am using this post.
    i am a big fan of yours…you were the sole voice cautioning against smith maoeuvre long back.

    i have a question..

    i am planning to use canadian shareowner to make my etf purchaes..i have read all brokerages are covered by CIPF..
    but is there any chances i could lose money because of the brokerage..any exclusions not covered by CIPF..
    the brokerage seems like a one amn operation..what happens after the period of the current founder..

    if brokerage is risky..would i be better stick to Td e funds..

    thanks

  • 5 Ray // Feb 19, 2009 at 3:30 pm

    I prefer ETF’s over index funds, gives me a little more flexibility.

    Bob: some exclusions are the account restrictions $1,000,000/brokerage and $1,000,000 for registered account. there really arent any exclusions in CIPF coverage as long as the brokerage is covered and your investments are in CAD dollars under the limit you should be fine. But if you are worried about the brokerage use a discount broker for your etf purchase questrader offers 4.95/trade no minimums.

  • 6 CIBC Index Mutual Funds // Feb 19, 2009 at 5:20 pm

    [...] Go to the author’s original blog: CIBC Index Mutual Funds [...]

  • 7 Canadian Capitalist // Feb 19, 2009 at 5:29 pm

    My understanding is personal accounts are held in trust for account holders. Even if a dealer goes bankrupt, CIPF will make up the shortfall within certain limits. You can find about it here:

    http://www.cipf.ca/c_explore_faq.htm

  • 8 EconStudent // Feb 19, 2009 at 6:01 pm

    CC: For the CIBC Short Term Bond Index, MER according to Morningstar.ca is .98%. Do you know which MER listed is correct?

    From what I read, short term bond index is a better choice than a total bond index. Do you think this is true in all scenarios?

    Does PC Financial MER rebate be added on top of management fee distribution discount of .63% or .68%?

    After the management fee distribution discount of .63% or .68%, how much trailing commission do you think CIBC pay to the broker? According to CIBC prospectus, .25% trailing commission is paid to broker when management fee distribution discount is not involved.

    Another advantage of CIBC index fund management fee distribution discount is that the combined assets of 150,000 can be over several accounts as long as the accounts have the same SIN # associated with it. This is what I read from some old forum discussions. It is possible to spread CIBC index funds over several accounts : discount brokerage, RRSP, and RESP and qualify for the management fee distribution discount.

    I think that once you get Vanguard into the comparison, very few companies have any offering that beats Vanguard equivalents even in the US. Vanguard is a mutual investment company so basicly it is a not for profit firm.

  • 9 Russell // Feb 19, 2009 at 10:40 pm

    How small is a smaller portfolio and how large is a larger portfolio? When does the transaction costs of using ETFs become cheaper that using the higher MERs of the TD e-Series?

  • 10 Chris // Feb 20, 2009 at 12:35 am

    Its too bad the CIBC funds are so expensive for small investors. There doesn’t seem to be any way to track a broad Emerging Markets index in a low cost, CAN$ denominated fund.

    iShares only offers a US version, and Claymore has limited their emerging markets to the BRIC. Apparently BMO is planning to offer a new set of ETFs, but their’s will track the Dow Jones World Emerging Markets which doesn’t include India, China or Russia.

  • 11 Canadian Capitalist // Feb 20, 2009 at 2:22 pm

    EconStudent: MER = Management Fee + Operating Expenses. My understanding is that operating expenses are the variable part of the equation and may vary. Maybe that accounts for the difference, assuming they are talking about different years.

    I wrote about bonds in an old post:

    http://www.canadiancapitalist.com/2007/07/04/short-term-versus-long-term-bonds

    But I should clarify that the view isn’t unanimous. Some opine that taking a bit of interest-rate risk is a good thing because it is a different kind of risk. Still, I avoid it because the excess return on long-term bonds is very small.

    It’s a good point about PC Financial and worth checking out. I don’t know about trailer fees after the discount. I agree that it’s hard to compete with Vanguard’s rock-bottom fees.

    Russell: I was asked this question before and kind of answered it in the comments section of this post:

    http://www.canadiancapitalist.com/2008/05/28/switching-from-index-mutual-funds-to-etfs

    I’ll clean it up and post about this next week. Thanks for the idea.

  • 12 Intelligent Speculator » Blog Archive » Investment Talking // Feb 21, 2009 at 9:44 am

    [...] Canadian Capitalist makes a review of CIBC Index Mutual Funds. [...]

  • 13 TStrump // Mar 8, 2009 at 8:56 pm

    I currently own the CIBC Monthly Managed Balance Income Fund and I have not been happy with it.
    Their managed fund hold portions of some of their other funds and ‘re-balance’ occasionally.
    I actually don’t know what the MER is – guess I should know that, but I find it quite expensive.
    It’s time to change I think – I like ETF’s.

  • 14 Wealth Manager // Mar 26, 2009 at 10:39 pm

    I use the CIBC Index funds as a place to put my money until I have enough to justify an ETF purchase (min $2500 is my rule; more often $5000). Rebalancing is normally once/twice a year so the hit isn’t a big deal and there’s no cost to buy/sell so it works well in my case.

  • 15 Wealth Manager // Apr 14, 2009 at 1:08 pm

    One question here: I’ve been buying the CAD$ (CIB484) version of the US Broad Market Index but there’s also the US$ denominated version (CIB884).

    I recently read somewhere USD$ fund versions are unhedged and elsewhere the CAD$ versions are unhedged.

    Can someone shed some light on this.

  • 16 Wealth Manager // Apr 14, 2009 at 8:58 pm

    Scratch that question – not sure what I was thinking at the time!

  • 17 J. Allen Strople // Dec 28, 2009 at 11:30 pm

    Why does CIBC charge a $ 40. fee for someone holding mutual funds from another institution who wishes to sell any amount of these funds. I am thinking in particular when the CIBC is managing a substantial amount of their investment portfolio and are in receipt of trailer fees in excess of $5,000. per year. It strikes me as an overly greedy approach to financial management. I would appreciate some logical explanation for this practice.

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