Are Tangerine Investment Funds any good?
It’s no secret that I’m a huge fan of Tangerine. The reason? There are little to no fees, their website and app are simple and intuitive to use, and their interest rates are reasonably competitive.
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
An automatic savings plan
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 NASDAQ. One of the benefits of ETFs is that the management fees are often very low.
The problem with Tangerine Investment Funds
Let’s look at one of Tangerine’s most popular products: INI230, the balanced growth portfolio. Per Tangerine’s website, the fund is allocated as follows:
25% Canadian bonds which “seeks to replicate the FTSE TMX Canada Universe Bond Index”
25% Canadian stocks which “seeks to replicate the S&P/TSX 60 Index”
25% American stocks which “seeks to replicate the S&P 500 Index”
25% International stocks which “seeks to replicate the MSCI EAFE (Europe, Australasia and Far East) Index”
The management expense ratio (MER) of this fund is 1.07%. In other words, for every $100 you invest you’ll pay a management fee of $1.07 each year. This isn’t too bad, but you can buy an ETF with much lower fees for all of these indexes.
Don’t believe me? Here are the tickers 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 0.22%. That’s a 0.85% improvement compared to the Tangerine Investment Funds!
Imagine you invested $1,000 today and your investment returned 7% annually, before expenses. With a MER of 1.07%, your investment would be worth $5,630 in 30 years. In comparison, with a MER of 0.22%, your investment would be worth $7,156.
In this hypothetical scenario, a 0.85% reduction in fees increased returns by 27%.
So how do I buy these ETFs?
ETFs trade like stocks, so you’ll need to open an online brokerage account. I recommend Questrade to anyone who is just starting out, and Interactive Brokers to more experienced investors.
Once you have a brokerage account, you can replicate Tangerine’s INI230 investment fund by using 25% of your capital to buy XBB, 25% to buy XIU, 25% to buy XUS, and 25% to buy XIN.
Tangerine’s other funds can be replicated in the same way, and of course you can customize your portfolio even further by incorporating other ETFs.
Other things to consider
If you do decide to take the ETF route, you’ll need to rebalance your portfolio about once a year, and reinvest your dividends on a quarterly basis. If you have very little capital, say less than $5,000, it’s probably not worth switching to an online brokerage like Questrade until you can build your savings a bit more.
For new investors, Tangerine’s Investment Funds aren’t too bad compared to many of the mutual funds out there. However, if you already have an established portfolio or are looking to invest a large sum of money it’s best to look elsewhere.