Why Tangerine Investment Funds are not a good investment

Are Tangerine Investment Funds any good?

EQ Bank Savings Plus Account

It's no secret that I'm a huge fan of Tangerine.  The reason? There are little to no fees and as far as I'm concerned a dollar saved is two dollars earned.  

With this in mind I was excited to learn that Tangerine offers investment products as well.  A cursory look at their investing page shows a lot of promise: 

  • A strategy focused on index investing

  • Global diversification

  • An automatic savings plan

  • Low unit prices, giving clients the ability to start investing with very little starting capital

But here's the problem: the fees are really high compared to most Exchange Traded Funds (ETFs) without providing much additional value.

Exchange traded funds

Exchange traded funds are marketable securities that track an index or basket of assets.  These days there's an ETF for everything.  For example SPY tracks the S&P500 and QQQ tracks the NASDAQ100.  One of the benefits of ETFs is that the management expense ratios (the fees) are often very low.

The problem with Tangerine Investment Funds

As an example, let's look at Tangerine's most popular product: INI220, the balanced growth portfolio.  Per Tangerine's website the fund is allocated as follows:

  • 40% Canadian bonds which "seeks to replicate the FTSE TMX Canada Universe Bond Index"

  • 20% Canadian stocks which "seeks to replicate the S&P/TSX 60 Index"

  • 20% American stocks which "seeks to replicate the S&P 500 Index"

  • 20% International stocks which "seeks to replicate the MSCI EAFE (Europe, Australasia and Far East) Index"

The management expense ratio of this fund is 1.07%.  This isn't too bad, but you can buy an ETF for all of these indexes with much lower fees.

Don't believe me? Here are the stock symbols for each:

  • XBB - tracks the FTSE TMX Canada Universe Bond Index (MER: 0.09%)

  • XIU - tracks the S&P/TSX 60 Index (MER: 0.18%)

  • XUS - tracks the S&P500 Index (MER: 0.11%)

  • XIN - tracks the MSCI EAFE Index (MER: 0.49%)

If we take a weighted average of these ETFs the effective MER comes out to 0.19%.  That's a 0.88% improvement from Tangerine's investment fund.

Imagine you invested $1,000 now and your investment returned 7% annually before expenses.  With a MER of 1.07% your investment would return $5,630 after 30 years, in comparison to $7,217 with a MER of 0.19%.

In this hypothetical scenario a 0.88% reduction in fees increased your return by 28%. 

So how do I buy these ETFs?

ETFs trade like stocks  so you'll need to open an online brokerage account with a company like Questrade.  (By the way, Questrade has some nice signup bonuses you can check out, and buying ETFs is free.) 

Once you have a brokerage account you can replicate Tangerine's INI220 investment fund by using 40% of your capital to buy XBB, 20% to buy XIU, 20% to buy XSP, and 20% to buy XIN.  In this way to can replicate the same fund for a cheaper price.

Other things to consider

If you have very little capital, say less than $5,000, it's probably not worth switching until you can build your savings a bit more.  Just getting started is a great first step and Tangerine's products aren't too bad compared to many of the mutual funds out there.  

If you do decide to take the ETF route you'll need to rebalance your portfolio about once a year.  For example, if XBB does well and XIN does poorly they will no longer have the desired 20% weight on your portfolio.

A final consideration is that you will need to reinvest your dividends by yourself on a quarterly basis.