Why you should avoid Tangerine Investment Funds

Stack of coins

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

  • Global diversification

  • 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.

Bottom line

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.

8 thoughts on “Why you should avoid Tangerine Investment Funds”

  1. Hi, I have around $450,000 cdn invested right now in various Tangerine products.
    Over the years I have been with 3 of the major big banks and did I not do to well.
    I seem to never be able to get a “good” return.
    I am retired and consider myself in the low risk category.
    Do you Have advice on how I can improve my situation?

    Thanks, Alex

    1. That’s a tough situation Alex, and one that you may want to hire a fee-for-service advisor to help you with. That said, the most important rule is to invest in diversified funds with low management fees. The big banks tend to have the highest fees out there, often over 1%/yr. I’d start reading up on exchange traded funds (ETFs), which are by far the lowest cost way to invest these days.

  2. You stated that the tangerine funds do provide “additional value” can you explain more? How long have you been investing?

    1. Great question. Here are some examples of the value the funds provide:

      1 – If you are already banking with Tangerine, opening an investment account is quick and easy, as is moving money between your accounts

      2 – You can set up an automatic investment plan that integrates with your Tangerine chequing account

      3 – For beginners the expense ratios are, in dollar terms, very reasonable and are a great way to dip your toes in the market

  3. The allocation you have listed is for Tangerine’s Balanced Portfolio and not the Balanced Growth Portfolio. The Balanced Portfolio is also the company’s most popular product.

  4. I did a comparison of these ETFs and the Tangerine Balanced fund using closing prices from Dec 29, 2017 to October 29, 2018. The ETFs lost 3.17% while the Tangerine fund only lost 2.39%. The bond ETF was weighted 40% and the other three were weighted 20% each. The historical prices for the ETFs were corrected for dividends and were supplied by Yahoo Finance.

    1. Hey Tim,
      Thanks for pointing this out, your numbers are correct due to a mistake I made with the stock tickers. The Tangerine funds do not currency hedge their American equities so XSP is not the proper substitute, XUS is. Because the US dollar appreciated versus the Canadian dollar during this time frame the unhedged fund outperformed. I’ll update the article to reflect this, and I’ll work on getting a chart in there too.

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