The savvy investor’s preference for ETFs over mutual funds can be a bit limiting at times.
Certain mutual funds compare very well with exchange-traded funds and may actually be more suitable for do-it-yourself investors. Example: the Phillips, Hager & North Bond Fund in its Series D option.
D-series funds are for self-directed investors who don’t want advice. With conventional Series A and B funds, a big chunk of the management expense ratio goes toward compensating advisers and their firms for service to clients. Series D chops out most of these costs, leaving investors with a substantially lower MER. For PH&N Series D, the MER comes in at just 0.6 per cent.
Bond ETF fees have been coming down in the past year or so and are now as low as 0.11 per cent or so. But even with its higher fee, PH&N Bond has delivered competitive long-term returns. Let’s compare it with the iShares Core Canadian Universe Bond Index ETF, which began trading in November, 2000. For the five- and 10-year periods to April 30, PH&N Bond made 2.3 per cent and 4.2 per cent, respectively, and XBB made 2.2 per cent and 4 per cent.
Recent results have favoured XBB slightly – it lost 1.1 per cent in the 12 months to April 30, while XBB lost 1.4 per cent. But the management team at PH&N has shown an ability to deliver returns that are consistently competitive against the country’s oldest bond ETF.
What might tip the balance in PH&N Bond’s favour for a DIY investor is the fact that it can be bought and sold at no cost. A few brokers charge nothing to buy ETFs, but generally you pay just under $10 to buy or sell. If you’re making biweekly contributions to a diversified portfolio, you could conceivably pay $260 a year just to add a bond ETF to your portfolio. PH&N Bond would cost you nothing to buy.
ETFs are getting lots of attention these days, in large part because of their impressively low fees. But D-series mutual funds can offer a strong alternative for the open-minded DIY investor. Don’t rule them out, just because they’re mutual funds.
Rob Carrick