Here’s an index fund to buy if stock prices fall

If stock markets correct in the near term, we advise you to add to your holdings when prices are down. Among funds that make good candidates for buying during corrections are index funds such as the one discussed below.

If stock markets correct in the near term, we suggest you have the fortitude to add to your holdings when prices are down. If you have plenty of time before you need your money back, falling prices are indeed a bonus — a chance to buy stuff cheap.

Index funds, dividend funds that focus on common stock and large-cap funds all warrant averaging down when prices fall. Indeed, it’s safer to average down with mutual funds than with individual stocks.

But remember, share prices can move in strange ways in the short term. So don’t make bets with next month’s mortgage payment.

Average down with this fund

One index fund that’s suitable for averaging down is TD CANADIAN INDEX FUND-e. The top holdings on its fund card consist of blue chip stocks such as Royal Bank of Canada at 6%, Toronto-Dominion Bank at 5.3%, Bank of Nova Scotia: 4.3%, Suncor Energy Inc – Common: 3.2%, Canadian National Railway Co – Common : 3%. You can get the full list here: https://www.tdassetmanagement.com/fundDetails.form?fundId=3261&lang=en.

Its investment objective is to provide long-term capital growth primarily by buying Canadian stocks to track the performance of the S&P/TSX Composite Total Return Index. To achieve this objective, the fund seeks to replicate the Index. Each security in the Index is held by the fund in close tolerance to its Index weight so that the performance of the fund closely tracks it.

TD Canadian Index-e’s tracking of the Index has been spot on these past 10 years. Over this time, the fund’s compound annual growth rate is 7.33 per cent, compared with a 7.66-per cent return for the Index. The difference between these two figures equals the fund’s management expense ratio of 0.33 per cent. That means the fund has no tracking error over the 10-year period.

But the fund’s unitholders have benefitted from more than just no tracking error over the 10 years. TD Canadian Index-e’s 7.3-per cent return for the period is a top-quartile performance in the Canadian equity category. What’s more, the fund consistently delivered above-average results over the period, performing in the top half of the category in nine of the 10 years.

Performance has lagged this past year, but that could change if the global economy gains momentum.

Volatility is middle-of-the-road for this sort of fund. So you should be able to tolerate medium investment risk if you plan to invest in it.

The fund gives you one-step exposure to large, well-established Canadian companies. But its heavy focus on financial and resource stocks means that it should be purchased as part of a well-diversified equity portfolio that provides adequate diversification across industry sectors.

Recommendation:
TD Canadian Index Fund-e is a buy for investors who wish to track the returns of a major Canadian equity index.

 

Canadian Mutual Fund Adviser, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846