Vanguard Announces Five New ETFs - MoneySense

Vanguard Announces Five New ETFs

When I spoke with Vanguard’s managing director Atul Tiwari back in June, he said the company would be announcing a new suite of ETFs in the coming months. That announcement arrived late yesterday afternoon: Vanguard will launch five new ETFs before the year is out. Right now, all we know is the names of the […]

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When I spoke with Vanguard’s managing director Atul Tiwari back in June, he said the company would be announcing a new suite of ETFs in the coming months. That announcement arrived late yesterday afternoon: Vanguard will launch five new ETFs before the year is out.

Right now, all we know is the names of the funds and the indexes they track, but that’s enough to get a good idea of their strategies. Here’s my take on the new funds and where they fit in the Canadian ETF landscape:

Vanguard FTSE Canadian High Dividend Yield. No surprise here given the giddy popularity of dividends in recent years. Assuming this new ETF will use a strategy similar to that of the Vanguard High Dividend Yield (VYM), which also tracks a FTSE index, it will focus on stocks with above-average current yields rather than dividend growth. With that in mind, I’d guess it’s likely to be closer to the iShares S&P/TSX Equity Income (XEI) than to any other competitor. The management fee is 0.30%.

Vanguard FTSE Canadian Capped REIT. This real estate fund will go head-to-head with the iShares S&P/TSX Capped REIT (XRE), and with a management fee of 0.35% it’s 20 basis points cheaper. It will track a new benchmark called the FTSE Canada All Cap Real Estate Capped 25% Index, which is a bit of a mouthful. The term “All Cap” suggests the index will include some of the smaller REITs that are excluded from XRE, and the “Capped 25%” indicates that no company can make up more than 25% of the index. That’s significant, because the giant RioCan has occasionally challenged that limit: it currently makes up 21.5% of XRE, which also imposes a 25% cap. I would have preferred a 10% cap to prevent one or two companies from dominating. That’s the reason my Complete Couch Potato uses the BMO Equal Weight REITs (ZRE), which includes 18 REITs with only 5.5% assigned to each.

Vanguard Canadian Short-Term Corporate Bond. This one seems pretty straightforward: it will track a Barclay’s index of corporate bonds with maturities of one to five years. It will face off against the hugely popular iShares 1-5 Year Laddered Corporate Bond (CBO), which has $1.4 billion in assets, the iShares DEX Short Term Corporate Universe + Maple Bond (XSH), and the BMO Short Corporate Bond (ZCS). The Vanguard ETF will trump all of them in costs with a fee of 0.15%.

Vanguard S&P 500 Index ETF S&P 500. Finally, a Canadian ETF that tracks a traditional US stock index without currency hedging. It’s hard to believe this has been so long in coming. (Currently the only other unhedged US index ETF in Canada is the iShares US Fundamental, ticker CLU.C.) I’m surprised and a bit disappointed they didn’t create an unhedged version of the Vanguard MSCI U.S. Broad Market (VUS), which tracks a total-market index with more than 3,200 stocks. But this new ETF will at least allow Canadians to get easy access to large caps without having to trade in US dollars or deal with the persistent drag of currency hedging. The management fee is 0.15%, the same as VUS.

Vanguard S&P 500 Index ETF (CAD-hedged). The demand from advisors for S&P 500 ETFs with currency hedging must be enormous, because this is now the fourth one to appear in Canada if you include the proposed change to the BMO US Equity (ZUE). At least it will be the cheapest: at 0.15% it might even make a dent in the giant iShares S&P 500 (XSP), which charges 0.25% on its asset base of $1.57 billion.

Vanguard has not announced a planned launch date for the ETFs, though I expect it will be in December. (For what it’s worth, Vanguard filed the preliminary prospectuses for its first five ETFs on August 22, 2011, and the funds started trading on December 6.) You can read the preliminary prospectus here.

ETF competition in Canada just got a little more interesting.

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