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You’ve heard of mutual funds, but have you heard about index funds? If you’re a sophisticated investor you probably have. However, ING Direct’s Streetwise Fund is not exactly targeting the sophisticated investor. Instead what I believe ING is trying to do with the Streetwise Fund is to tap the average mutual fund investor. I am talking about the kind of person who does not actively manage his/her own investment portfolio. The Streetwise Fund definitely a no-brainer as you don’t even have to pick out a particular fund as you would when investing in mutual funds. Instead what you do is park your money and the folks at ING Direct invest that money in various markets.

So, how does the Streetwise Fund work?

Amazingly simple! Essentially the Streetwise Fund is something called an “index fund”or what is also commonly referred to as a “index mutual fund.” A typical mutual fund invests in the stock of particular companies or in various financial instruments such as bonds, debentures, certificates of deposit (CDs), etc. Instead of this approach, index funds such as the Streetwise fund invest your money in ENTIRE markets. So what you’re doing is basically buying a small piece of every company that comprises a particular market index such as S&P 500, S&P/TSX 60, and so on. To be more specific, ING’s Streetwise Fund is a “Balanced Mutual Fund” with investments spread across 4 major Stock and Bond Market Indexes including:

  • Canadian Bonds (DEX Universe Bond Index) This Index contains nothing but bonds. It is 100% Canadian, and managed by PC Bonds a subsidiary of the TSX Group.
  • Canadian Stocks (S&P/TSX 60) This Index contains 60 of the largest blue chip Canadian Stocks listed on TSX. It is 100% Canadian, and managed by Standard & Poor’s.
  • US Stocks (S&P 500) This is a lead Index containing 500 of the most widely held companies in the US. It is 100% American and managed by Standard & Poor’s.
  • International Stocks (MSCI EAFE) This is an Index of international stocks from Europe, Australia and the Far East. It is managed by Morgan Stanley Capital Inc.

Ok, fine, but why invest in whole markets when you can own specific stocks and get better returns?

I see, you’ve got a trader’s mentality. Well, good for you. If you can “beat the market” as they say, then you’re on your way to becoming the next Warren Buffet, and I wish you the best of luck. However, you may or may not be surprised to know that fund managers simply can’t beat the markets over the long term. The majority of them are mediocre at best. Owning a piece of the “whole market” at the very least guarantees you the minimum market performance. If you decide to still try to outsmart the market and play with specific stocks then that is your prerogative, but having some of your money in an index fund is still a good idea because it spreads your risk by diversification. Now let’s get into some of the details of the Streetwise Fund: This index mutual fund comes in 3 flavors to suit particular investor profiles.

1 – Streetwise Balanced Income fund

Asset Allocation:

70% Canadian Bonds

10% Canadian Stocks

10% US Stocks

10% International Stocks

2 – Streetwise Balanced Fund

Asset Allocation:

40% Canadian Bonds

20% Canadian Stocks

20% US Stocks

20% International Stocks

3 – Streetwise Balanced Growth Fund

Asset Allocation:

25% Canadian Bonds

25% Canadian Stocks

25% US Stocks

25% International Stocks

Choosing which one of the 3 available funds largely depends on your investment goals and risk tolerance. The most conservative of the 3 is the Streetwise Balanced Income Fund because it has the lowest stock market exposure. If you can’t decide which is best for you ING Direct has this Investor Profile questionnaire which can help you determine your particular investor profile/risk tolerance level. Click here to access their Investor Profile questionnaire.

Now let’s discuss fees

The average MER (Management Expense Ratio) on most Canadian mutual funds is roughly 2.6%. The Streetwise Fund has an MER of just 1%. There is some debate that I’ve found online with regards to whether ING’s Streetwise Fund can be truly considered a mutual fund in the traditional sense. There is further debate about the fairness of ING comparing their fund’s management expense ratio to those of other traditional mutual funds. I guess it’s a debate about semantics.

Even so, the expense ratio is still relatively low by virtue of this it can save you a lot of money in the long run. Checkout this little example that illustrates the point:

If you were investing $10,000 in The Streetwise Fund (as opposed to some other mutual funds that charge 2.6% on average) you’d save about $170/year. Assuming that this saving is growing at 7% per year, you’d have $2600 more in your fund after 10 years

However if willing to do a bit more work than an even cheaper alternative is to look into Barclay’s iShares ETF Funds (exchange traded funds). When compared to the Barclay iShares ETF Funds, ING’s fees end up being more. Checkout these links for details:
http://www.ishares.ca/product_info/fund_overview.do?ticker=XBB
http://www.ishares.ca/product_info/fund_overview.do?ticker=XIU
http://www.ishares.ca/product_info/fund_overview.do?ticker=XSP
http://www.ishares.ca/product_info/fund_overview.do?ticker=XIN

The Value of a Streetwise Unit

as of 5/14/2008

Streetwise Balanced
Income Fund

$10.22
Streetwise Balanced
Fund

$10.25
Streetwise Balanced
Growth Fund

$10.27

ING also has something called Streetwise Cash, which to me seems nothing more than a renamed version of their popular savings account. It may be a good place to park some money while you decide where to allocate your investment funds. As of today Streetwise Cash offers and interest rate of 3%.

That about does it for this review. I hope you found it useful and informative. Happy investing!

Cheers,

Alan

*The ING Direct Streetwise Fund is available Canadian Citizens only*




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Author:
alan
Time:
Friday, May 23rd, 2008 at 9:17 am
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Investments
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8 Responses to “ING Direct Streetwise Fund”

  1. Adam Says:

    Thanks for the information it was very helpful and informative. I’ve been thinking of putting some money in the streetwise fund because I’ve been interested in index mutual funds.

  2. admin Says:

    You’re most welcome Adam.

    Yep, I think it would be a good idea to put a bit of money in a market index fund such as the StreetWise Fund. Alternatively you can open up a brokerage account and buy market indexes directly. But then again you’d have to manage your own funds this way as well as worry about broker commissions.

  3. Bram Says:

    I moved my rsp money to streetwise balanced growth fund. I did not do any research on past performance. If I had, I may have opted not to go ahead, as since its start it went down pretty hard.

    I was lucky though, I entered the fund at a low point, and it’s been going up pretty quickly each month so far.

    For me it’s been a good deal. If you had your money in this from the start, not so much.

  4. admin Says:

    These index funds were not a good investment unless like you said you get in on the bottom of that huge fall in the market. The only way you make money with these if the markets continue to grow. That’s the whole problem with RSPs and any sort of traditional investment. All the managers of these funds do is BUY, they do not short stocks so you don’t make one penny when markets don’t go up.

    Well, glad to hear that’s it’s been a good deal. Hopefully the market indexes will continue to rise and you make money. But I do feel the pain others are in when they see a 30% drop in their accounts! Crazy times we live in.

  5. Bram Says:

    So I have had this fund (Balanced Growth) for a while now. But there seems something wrong with it.

    If you look at the 6 month performance of all 4 components:

    US: +26%
    CA: +19%
    WD: +24%
    bonds: 0%

    Balanced growth should be average of these 4, as it participates for 25% in each.

    Yet: fund performance is +9%

    What the hell is going on???

    A chart that compares the Balanced Growth fund with all 4 underlying instruments is here:

    http://www.google.com/finance?q=NYSE:EFA,INDEXSP:.INX,TSE:.GSPTSE,TSE:XBB,MUTF_CA:INI130

    Bram

  6. Digit Magzine Says:

    At last, I found the right place to read some quite interesting stuff, thanks for sharing.

  7. tyr Says:

    interesting info. There’s an analysis of the returns and risk-effectiveness of the Streetwise funds here: http://ing-orange-key.blogspot.com/2010/04/performance-and-sharpe-ratio-of-ing.html

  8. alan Says:

    thanks for sharing that tyr…on the whole I’d say now is not a good time to invest in such funds. The markets are going up and down like a yo-yo so I’m not surprised the performance of index funds reflects that..

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