Your Complete Guide to Index Investing with Dan Bortolotti

RBC Revamps Its Index Fund Lineup

2018-05-28T22:47:28+00:00July 7th, 2017|Categories: Index funds, New products|Tags: |64 Comments

In my last post, I reviewed RBC’s forthcoming lineup of traditional ETFs, which will appear later this summer. The launch of these ETFs will also spark some changes in RBC’s index mutual funds: they’ll be getting new benchmark indexes and lower fees, and in some cases they’ll use the new ETFs as their underlying holdings. It’s good news for investors who want to use index mutual funds rather than ETFs, so let’s take a closer look.

We’ll start with the two equity funds that will see only a new benchmark, with no change to their structure.

The RBC Canadian Index Fund (RBF556) currently tracks the S&P/TSX Composite Index, but as of September it will be pegged to the FTSE Canada All Cap Domestic Index. (You can find the factsheets for all of FTSE’s indexes here.) These two indexes are very similar, so this is not a terribly meaningful change. The FTSE index is the same one tracked by the soon-to-be-launched RBC Canadian Equity Index ETF (RCAN), but the mutual fund will not use this ETF as its underlying holding—at least not yet.

Here’s why: the mutual fund has built up large unrealized capital gains (equal to about 24% of the fund’s net asset value as of May 19), so selling the stocks and replacing them with ETF units would mean realizing these gains and passing them along to the fund’s investors. To spare unitholders this tax bill, RBC has decided to hold off on the transition indefinitely.

The RBC U.S. Index Fund (RBF557) will be affected in a similar way: it will change its benchmark from the S&P 500 to the FTSE USA Index, the same one used by its corresponding new ETF. But because of the large unrealized gains in the fund, there are currently no plans to transition to use the new ETF as its underlying holding.

Over the hedge

The two currency-hedged equity funds in RBC’s lineup will not only see their indexes changed, but they’ll also change their structure entirely.

The RBC U.S. Index Currency Neutral Fund (RBF558) and the RBC International Index Currency Neutral Fund (RBF559) are unusual in that they don’t actually hold any stocks directly: instead, they get their exposure using index futures. This strategy is a holdover from the days when Canadians were limited in the amount of foreign investments they could hold in RRSPs. Since futures are not considered foreign investments, using them to get exposure to US an international stocks was a way of getting around that rule, which was finally scrapped in 2005.

As of September, these two mutual funds will stop using futures and instead use the corresponding new ETFs as their underling holdings: the RBC U.S. Equity Index ETF (RUSA) and the RBC International Equity Index ETF (RINT). Neither of these ETFs uses currency hedging, however, so the mutual funds will add that separately. Unfortunately, there will be no unhedged mutual fund option for international equities.

If you happen to hold either of these funds in a taxable account today, this is good news. Index futures are notoriously tax-inefficient, because any increase in their value is taxable as income rather than as capital gains. Going forward, fund investors will be able to enjoy the same tax-efficiency as ETF investors.

 Strike up the bonds

Finally, here’s how RBC’s lineup of bond mutual funds will evolve.

The most significant change is the creation of the RBC Canadian Bond Index Fund (RBF700). This is a rebranding of what used to be the RBC Advisor Canadian Bond Fund, which was essentially a closet index fund. In advance of the launch of the RBC Canadian Bond Index ETF (RCUB), the mutual fund changed its name and its mandate on June 30. Starting in September it will use the new ETF as its underlying holding.

The RBC Canadian Government Bond Index Fund (RBF563) won’t change at all, except to lower its fee slightly. The fund will continue to track the FTSE TMX Canada Federal Bond Index, which, as the name suggests includes only federal government bonds. This makes it quite different from broad-market bond index funds—including RBF700—which also include provincial, municipal and agency bonds, as well as 20% to 40% corporate bonds. Holding all federal bonds is slightly less risky, but also brings a significantly lower yield.

Best of the rest

For the last few years, Option 2 of my model portfolios—for investors who use individual index mutual funds, as opposed to ETFs or a single-fund solution—has included only the TD e-Series. These are much cheaper than any other option, but unfortunately they’re available only to clients of TD Mutual Funds and TD Direct Investing. If you use any other brokerage, the choices foe index mutual funds are pretty poor. These recent changes to the RBC lineup improves the situation, though only modestly.

RBC has announced that all of their index funds will see fee reductions effective immediately. Here’s a summary of the changes to the Series A version of the funds, which are ones available to retail investors through any online brokerage:

Index Fund (Series A) Old MER New MER
RBC Canadian Index Fund 0.72% 0.66%
RBC U.S. Index Fund 0.72% 0.66%
RBC U.S. Index Currency Neutral Fund 0.72% 0.61%
RBC International Index Currency Neutral Fund 0.71% 0.61%
RBC Canadian Bond Index Fund † 0.92% 0.76%
RBC Canadian Government Bond Index Fund 0.66% 0.61%

† = formerly the RBC Advisor Canadian Bond Fund

You’ve probably noticed the fee reductions are quite minor: an investor with a $50,000 portfolio of RBC equity index funds would pay roughly $50 less in annual fees. (The newly branded RBC Canadian Bond Index Fund seems particularly expensive at 0.76% in an era when the yield to maturity is only about 2%.) The fee reductions are much greater for the Series F versions, but these are available only through fee-based advisors.

That said, for those who do not have access to the TD e-Series funds, RBC’s new lineup appears to be the next best option thanks to these lower fees, improved tax efficiency, and broader indexes. A traditional balanced portfolio built from these new funds would look like this:

Index Fund (Series A) Allocation MER
RBC Canadian Index Fund 20% 0.66%
RBC U.S. Index Fund 20% 0.66%
RBC International Index Currency Neutral Fund 20% 0.61%
RBC Canadian Bond Index Fund 40% 0.76%
100% 0.69%



  1. Will July 7, 2017 at 1:36 pm

    RBC doesn’t have a non-currency neutral international fund?

  2. Canadian Couch Potato July 7, 2017 at 1:41 pm

    @Will: Unfortunately, no.

  3. Manny July 7, 2017 at 2:04 pm

    My ETF (VFV) is going down and down… do you think this is due to Trump losing trust from the American ppl? should it get better sooner than going worst? I am in for the long run so I will keep my money on it anyway but just wondering what to expect.

  4. Greg July 7, 2017 at 2:38 pm

    @Manny: The S&P 500, which VFV is based on, is up 8% year to date. VFV is going down because it’s priced in Canadian dollar equivalent. The CAD is on a tear.

    If most investors are like me, they’re getting hit on all sides: Canadian stocks down, international stocks way down in CAD equivalent, bonds down on rate hike speculation. So much for reducing volatility.
    Unfortunately, I bought all in May as a lump sum against my better judgement instead of dollar cost averaging over a number of months.

  5. Dave July 7, 2017 at 3:24 pm

    Why would any investor buy these over Vanguard?

  6. R July 7, 2017 at 4:41 pm

    It’s for branch clients, so that they don’t leave for much cheaper etfs with other providers

  7. Jake July 8, 2017 at 10:38 am


    Do you have any comments on the new Ishares Quality Dividend Index ETF’s

  8. Canadian Couch Potato July 9, 2017 at 10:31 am

    @Jake: I would put these in the same category as all other smart beta products:

  9. Joey July 9, 2017 at 11:45 am

    Why can’t Vanguard create mutual funds in Canada the same as they do in the US? They would be way better than anything else available.

    With an MER of 0.69% I think you’d be much better off with a Robo advisor.

  10. Credit unions r cool July 9, 2017 at 12:33 pm

    @Joey – Roboadvisors charge around 1% on TOP of the ETF MERs. Roboadvisors are good for not worrying about your money, but you might as well be in Mawer Balanced if you’re going that route. An index mutual fund is cheaper than a Roboadvisor. At least that’s my understanding from what I’ve read about WealthSimple, VirtualWealth, WealthBar, etc.

  11. andre July 9, 2017 at 2:35 pm

    @Credit unions r cool – Roboadvisors are not quite as expensive as that. Here are the approximate costs in addition to ETF MERs and note that there are no separate trading costs for Roboadvisors:

    WealthSimple – 0.5% (under $100k) or 0.4% (above $100k)

    VirtuaWealth – approx 0.75% (under $100k) sliding to ~0.5% for larger accounts

    WealthBar – 0.6% (up to $150k) sliding to ~0.5% (at around $400K) and 0.4% (at close to $1mil).

    So the total cost of Roboadvisors is comparable to the Mawer Balanced fund for smaller accounts and a bit cheaper for larger accounts.

    Though, I would say if you have more than $500k to invest, it’s a great payoff to spend a bit of time and learn how to be a DIY investor. I recognize that’s not for everyone though, especially if an investor is susceptible to poor behavior/market timing.

  12. BMT65 July 9, 2017 at 11:39 pm

    Glad to see these RBC index funds will finally include small caps. It was the one thing they were really missing. I can’t see myself moving back from Vanguard for these, but it’s a significant improvement for new investors. Great work by RBC to stay competitive and keep more clients invested in their home bank.

  13. Marko July 12, 2017 at 11:23 am

    My wife has $200K in those older RBC Index Funds – 25% Canadian Bond Fund and 25% in each of the Canadian, US and International Index Funds.

    She just moved them out of her RBC branch and into RBC Direct Investing with the intention to sell them and buy the BMO Aggregate Bond Fund, iShares XAW and BMO S&P/TSX Capped Composite. With $200K to invest in the 3 ETF’s she will save about $1200 per year in fees and have better products.

  14. Joe July 14, 2017 at 6:45 am

    Great article Dan. Would these new funds be tax efficient to hold in unregistered accounts or would you recommend ETF’s from your model portfolio instead?

    Thanks again
    Take care

  15. Carl July 15, 2017 at 1:37 pm

    @CCP: Thank you very much for the information. Do you know if the new RBC Canadian Bond Index Fund (RBF700) will have the same front end load structure than the RBC Advisor Canadian Bond Fund?

  16. Canadian Couch Potato July 17, 2017 at 8:48 am

    @Carl: I would be very surprised if any of the RBC index funds had a load of any kind, especially if purchased though a discount brokerage.

  17. Canadian Couch Potato July 17, 2017 at 8:58 am

    @Joe: There would not be much difference in tax-efficiency between these index funds and the ETFs in my model portfolios.

  18. David July 17, 2017 at 4:55 pm

    @CCP Great article thanks for the information,

    I’m just starting to invest, I have about $8000 in savings and have a bank account with RBC. Would you recommend me to start a mutual fund with RBC with this amount of savings?

    Or is there another route I could do? I’m willing to invest some money in “risky” mutual funds does this exist?

    Thanks for the help

  19. Canadian Couch Potato July 19, 2017 at 8:43 pm

    @David: This might be a more appropriate solution with $8K:

  20. Aki July 20, 2017 at 2:39 am

    Still how they will compare to

    I still think this is best couch portfolio suggested

  21. Aki July 20, 2017 at 2:41 am

    Also these r free to buy from questrade

  22. sri July 24, 2017 at 5:28 pm

    is it better to use blackrock mutual funds through direct investing.? MER is around 0.85. one fund will get good diversification.


  23. Canadian Couch Potato July 24, 2017 at 7:09 pm

    @sri: The BlackRock funds are designed for employer-sponsored plans (group RRSPs and pensions) and are not available through discount brokerages.

  24. sri July 24, 2017 at 10:15 pm

    in rbc direct investing blackrock funds are available for purchase .. these are listed under d-series funds… I opened a practice account and I am able to purchase .. its an individual account.

  25. Canadian Couch Potato July 25, 2017 at 8:07 am

    @sri: Thanks for pointing this out: I did not realize these were now available in D series versions. At first glance they seem overly complicated with an unclear strategy, i.e. many non-core asset classes and specialty funds mixed in, and the potential (according to the prospectus) for the manager to change the mix based on market conditions. So these are not really index funds.

  26. Sri July 25, 2017 at 10:05 am

    Thanks Dan .. what’s the model portfolio with RBC funds..only concern is in the event of emergency i don’t want my family members to run between different banks.. we bank with RBC..i want stick with RBC..the plan is every couple of years move money from mutual fund to ETFs.

  27. Jake July 25, 2017 at 1:34 pm

    With another day of the Bond ETF funds taking a loss I’m starting to rethink whether I should just go with GIC’s for my fixed income portion. I use to get Canada Savings Bonds every year and never lost a cent on them, always got the principal plus interest.. I don’t think I will ever understand Bond ETF’s or Bond mutual funds, to me I shouldn’t lose a cent on the principal and collect the interest.

  28. Mark July 26, 2017 at 1:29 pm

    Now if only you could purchase ETF’s with no fees @ RBC for their own products, that would be gravy !

  29. Eric July 26, 2017 at 6:35 pm

    Hello Dan,
    I’ve been checking my brokerage and online sites for an update of the MERs from these funds, and no updates yet. You posted that the changes were ‘effective immediately’, but if you go to the announcement page you listed, the changes are actually ‘effective September 15’, check it out:

  30. Greg July 27, 2017 at 3:17 pm

    @Jake: When you combine rate increases and bond ETFs, it’s short term pain, long term gain. The short term losses will reflect the increase in yields, but those higher yields will translate into higher distributions down the road. If you matched average maturity to your investment horizon, you’ll be fine. Increases in rates are a good thing for bonds, which is entirely logical in my opinion!

  31. Jake July 30, 2017 at 12:38 pm

    Yes as a saver I very much welcome an increase in interest rates but I still don’t understand why the Bond ETF’s principal value goes down and I never lost a cent on past canada savings bonds. Maybe the Bonds in an ETF aren’t like the CSB’s.
    To me if I put $10,000 in ZAG today and $10,000 in a CSB both should stay at $10,000 value and collect the interest on both but since I bought ZAG at first of the year the value has gone down ! It’s my first Bond ETF and likely my last, I never lost a cent on Canada Savings Bonds in the past.
    I think only GIC’s will be my fixed income portion of my portfolio,

  32. Greg July 31, 2017 at 9:37 am

    Canada Savings Bonds are not like regular bonds. From Wikipedia, “Canada Savings Bonds were available in regular and compounding interest. These bonds are cashable at any time”. Because they’re cashable at any time, their value will not fluctuate. Normal bonds are cashable only at maturity, and before maturity their value will fluctuate based on changes in interest rates (and other factors).

    You might want to read this article about bond basics:

    and this article about CSB basics:

  33. Matt August 6, 2017 at 12:32 am

    That’s really great news on the fee’s being reduced, even if only by a little, it makes a big difference in long run. The advantage of ETF’s is still huge though.

    The graphs in this vid really show by how much, it’s striking to see the impact over a long horizon.

    Great post, glad to see the industry keeps getting more competitive.

  34. caltran August 9, 2017 at 10:31 pm


    I’d give my left nut for MF versions.

    Is there some sort of regulatory hurdle that prevents them from doing this?

  35. Victor Sequeira August 18, 2017 at 1:11 pm

    Hi Dan,

    When I checked the RBC website, I still see the old MER’s for a couple of the index funds. Am I missing something?

    Also, if I buy index funds through my RBC Direct Investing account, do I have to pay the 9.95$ trading fee?



  36. Canadian Couch Potato August 18, 2017 at 1:34 pm

    @Victor: The RBC ETFs have not been launched yet, so the lower MERs have not yet taken effect in the mutual funds. As for investing through RBC Direct, there is no commission for buying or selling mutual funds.

  37. Jason M September 21, 2017 at 8:15 pm

    Hi Dan, I’m just wondering why you recommended the RBC Canadian Bond Index Fund with a MER of 0.76% over the Canadian Government Bond Index Fund with a MER of 0.61%? What about the greater diversification benefit to the government bond index?

  38. Jake September 21, 2017 at 10:02 pm

    @Jason M

    I believe the Canadian Bond Index which holds both government and corporate bonds is greater diversified than an all Government Bond Index fund which is why Dan recommended it.

  39. Canadian Couch Potato September 21, 2017 at 10:26 pm

    @Jason M: Yes, Jake is correct. A bond fund that holds some corporate bonds would offer more diversification and a higher yield, albeit with a bit more risk.

  40. Jason M September 23, 2017 at 3:25 pm

    @ Dan Thanks the feedback. What if you already have an assertive portfolio with 70/30 stocks/bond funds?

    During the 2008 downturn, the government bond index return was 11.15% while the normal bond index return was 6.98%, though curiously this was reversed in 2009.

  41. Canadian Couch Potato September 25, 2017 at 7:44 am

    @Jason M: It’s reasonable to expect government bonds to have a lower correlation with equities: I see now that this is what you mention by “greater diversification benefit.” With that in mind there is nothing wrong with keeping all of your fixed income in government bonds: indeed, some experts such as David Swanson recommend this. In general, I think a balance of government and high-quality corporate bonds is likely to achieve a similar reduction in volatility with slightly more expected return.

  42. Jason M September 27, 2017 at 7:48 pm

    Thanks again Dan, I really appreciate it.

    For anyone interested, here’s an older blog post by Justin Bender that I also found useful:

  43. Shael October 8, 2017 at 2:17 pm

    Just wondering if these changes have taken effect yet. I haven’t seen any updates on the RBC website, unless I’m looking in the wrong places.

  44. Canadian Couch Potato October 9, 2017 at 11:47 am

    @Shael: The new RBC ETFs were launched just a couple of weeks ago (late September) and the transition to using them as the underlying holdings for the mutual funds will likely take several months.

  45. Cam October 12, 2017 at 7:04 am

    Can I buy Series A funds with an RBC DI account? Id like to follow the couch potato strategy but only see Series D touted online.

  46. Canadian Couch Potato October 12, 2017 at 7:13 am

    @Cam: Generally D-series funds are preferable for DIY investors because their fees are lower than A-series funds. But RBC’s index fund family does not include D-series versions. You should be able to buy the A-series version with no problem at RBC Direct.

  47. Julien October 19, 2017 at 1:40 pm

    Hello :

    I am new at investing and I have been investing in the RBC index funds for a few months now using the Coach Potato strategy.

    My question relates to fund ratings/grades and what (if anything) I should take away from them. For example, the RBC Canadian Index Fund Series A (RBF556) is listed as 3 stars on Morningstar and as a D on What does that mean, in particular in the context of an index fund? Does that mean that it is not as good of an index funds in comparaison to other equivalent index funds? Is this rating/grade determined solely based in comparison to other similar index funds or to all other mutual funds (whether or not using an index). To the exception of fees (which I don’t know if the rating/grade takes into account), I fail to see how different funds tracking the same index could be better or worse than the other. What am I missing?


  48. Canadian Couch Potato October 19, 2017 at 3:07 pm

    @Julien: This is a great question. I can’t get too specific without understanding the methodology used by Morningstar or (I will look more deeply into this) but you are right on with your observation that these kinds of ratings are really not helpful in assessing index funds.

    Consider, for example, an index fund that tracks its benchmark closely for 10 years. During the first five years in that period, 90% of active funds underperform the index, while in the second-five year period only 20% of active funds underperform. In the first case, the index fund would rank much higher relative to its peers than it would in the second, and would likely receive a higher rating. But this is meaningless, because throughout the 10-year period the index fund did exactly what it was designed to do. It’s the active managers who are succeeding or failing at their stated goal, which is to beat the index.

    All one can ask of an index fund is to track its benchmark closely (and with tax-efficiency):

  49. Anil October 19, 2017 at 11:44 pm

    Hi there! I am interested in investing using CCP strategy in the funds noted here. In my research of the funds, they are still showing the old MER. Have these changes not taken effect yet? Thanks!

  50. Canadian Couch Potato October 20, 2017 at 7:24 am

    @Anil: MER is a backward-looking measure and it is published as part of a fund’s audited financial statements. While investors can expect to pay the new lower immediately, that may not be reflected in the MER until the fund’s next audit, which can take a year or more.

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