arrow4 Comments
  1. Doctor Stock
    Mar 16 - 12:43 am

    If I’m understanding this correctly, it is disturbing really. Time to get out a forensic accountant….

  2. Charles in Vancouver
    Mar 16 - 11:24 am

    I wonder if the random under/overperformance could also be due to currency and dividends. For example the US index pays only an annual dividend. Over the course of a year, the underlying equities would spit out US dollar dividends that accrue until the fund is ready to drop its dividend. The actual percent dividend by the end of the year could depend on whether that accrued cash was converted to Canadian as it arrived, or only right at the end of year.

    Similarly, the index returns assume that the US dollar amount of dividends is reinvested immediately. With an annual dividend in Canadian dollars, the number of new shares bought of underlying companies will be different compared to the index expectation. This could easily create over- or underperformance.

    I see 2008 is a year when the fund did 1.1% better than the index. Notably it’s also a year in which US cash severely outperformed the stock market and the Canadian dollar. The simple fact of holding dividend cash in US$ until the end of 2008 could have easily accounted for that.

  3. moneyxyz
    Mar 16 - 2:26 pm

    So, what does this all mean? That ETFs should be used instead of these index mutual funds if one wants to track the index?

  4. Canadian Capitalist
    Mar 16 - 5:44 pm

    @Charles: Yes, foreign exchange fluctuations accounts for some of the tracking error in US ETFs / Index funds. The index returns are computed as price change plus dividends divided by the starting price. If the funds convert dividends as they are received, it will result in tracking error (both positive and negative depending on the direction of currency movement).

    @moneyxyz: Here’s the bottom line: The tracking error in TD e-Series Funds is not way out of line of what you’d expect when you take into account costs like MERs, withholding taxes, foreign exchange fluctuations and sampling errors. TD e-Series Funds remain a great choice for low-cost, diversified portfolios, especially when modest amounts are invested on a regular basis.

Leave a Reply

Mobile Theme