The discount brokerage price war is officially on. After Scotia iTrade became the first online brokerage to offer commission-free ETF trades last month, Qtrade Investor has followed suit. The Vancouver-based independent has just launched its own zero-commission ETF program, with an even bigger list of choices.
Qtrade’s menu includes 40 Canadian ETFs from Claymore, iShares and Horizons, and even a couple from the new PowerShares lineup. More interestingly, the choices also include 20 US-listed ETFs from Vanguard, iShares and State Street.
Before long-term Couch Potato investors get too excited, however, the list of eligible ETFs does have several gaps. There are few broad-market funds: most have narrow mandates. The most popular broad-market Canadian and US equity ETFs are not there—not even Claymore’s CRQ or CLU, which are included in the Scotia iTrade program—and all of the US-listed ETFs are sector-specific funds. Sorry, no core Vanguard ETFs.
Covering the broad market
The Horizons S&P/TSX 60 (HXT) and Horizons S&P 500 (HXS) are both part of the Qtrade program, and would be fine for covering the large-cap Canadian and US markets, as long as you’re comfortable with the swap structure. You could even combine HXT with the iShares S&P/TSX Completion Index Fund (XMD), which holds mid- and small-cap stocks, to get complete coverage of the Canadian market.
For broad coverage of international equities, there’s the Claymore International Fundamental (CIE) and iShares MSCI Emerging Markets (XEM). I like that both of these ETFs do not hedge currency, but they are very expensive by ETF standards: 0.73% and 0.79%. Unless you’re making a lot of purchases, you’re likely better off paying the $10 commission for a Vanguard ETF.
On the fixed income side, the Qtrade lineup includes Claymore’s excellent short-term bond funds, CLF (government bonds) and CBO (corporate bonds), as well as the iShares DEX Real Return Bond (XRB). The broad-market Claymore Advantaged Canadian Bond ETF (CAB) is also eligible, and it would be fine for a non-registered account: Claymore’s Advantaged family of ETFs uses a complicated structure that is more tax-efficient. But it offers no advantage to RRSP investors. A mix of CLF, CBO and XRB would likely be a better choice for the bond allocation in a registered account.
Qtrade is now the only discount brokerage in Canada to offer both no-commission ETFs and the ability to hold US dollars in an RRSP (although there is a $50 fee for this service). Throw in a reputation for excellent customer service and Qtrade’s offering is pretty compelling.
Any guesses about which brokerage will be the next to offer commission-free ETFs?