ETF price war

Ultra-cheap ETFs have arrived in Canada thanks to new U.S. players.

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  • There’s an ETF price war underway and Canadian investors are winning, according to Canadian Business magazine. BMO’s Horizons and BlackRock’s iShares are playing ball with Vanguard’s low-fee products resulting in tens of thousands of dollars in possible savings over an investment lifetime.
  • Tune into MoneySense Editor Jonathan Chevreau’s live chat Thursday at 8:30 p.m. ET hosted by CBC Doc Zone. Chevreau and company will be chatting about modern retirement and commenting on The Boomer Revolution documentary airing at 9 p.m. ET. Plus enter for your chance to win Chevreau’s financial novel Findependence Day.
  • Also, a friendly reminder that Friday is your last day to contribute to your RRSP for the 2012 tax year and potentially qualify for a juicy tax refund. Haven’t started? We’ve got you covered. Read: The procrastinator’s guide to the RRSP deadline.

3 comments on “ETF price war

  1. Canadian investors need to look at more than just the stated Management Fees when comparing ETF expenses. Vanguard is a great one for stating low management fees, but having high Trading Expense Ratios (TER).
    For example, the Vanguard MSCI Canada Index ETF states a Management Fee of 0.09% per year, yet the TER was 0.60% in 2011. Making this an expensive ETF option when compared to iShares' S&P/TSX 60 Index ETF that had a 0.18% Management Fee and a 0.02% TER for the same period, or BMO's S&P/TSX Capped Composite ETF with a 0.15% Management Fee and a TER of 0.02%, or Horizon's S&P/TSX 60 Index ETF with it's 0.07% Management Fee and it's 0.01% TER.
    More and more ETF managers are lowering the stated Management Fees while shifting expenses into the Trading Expense section of costs.
    In addition, TERs are often buried deep inside the ETF's annual prospectus or Management's Discussion, not on the ETF's Fact Sheet, making them difficult for investors to uncover.
    Buyer beware!

    Reply

    • We appreciate that you’ve obviously taken the time to look at our ETFs. However, it appears you’ve made a few assumptions that are incorrect.

      As noted in our December 2011 Management Report of Fund Performance (MRFP), our TER was actually 0.02%. The difference between our 0.09% Management Fee and our stated Management Expense Ratio (MER) of 0.69% is largely explained by costs associated with an independent review committee, which is required by regulators to monitor any conflicts of interest. However, those costs have come down as assets have increased. Our June 2012 interim-MRFP shows the MER had fallen to 0.13%. The TER was 0.00%.

      A final point: We stopped charging the cost of the review committee to the fund in August. This should be reflected in the MER when the new MRSP is published.

      David Hoffman, Vanguard

      Reply

      • Mr. Hoffman, thank you for updating the current numbers for your ETF.
        The disclosure of costs is at best confusing for the average investor. A couple of questions, if you don't mind.
        1) Why not simply publish your ETF MERs on each Fact Sheet to more accurately reflect an ETF's total investment costs? Simply stating Management Fees provides an incomplete picture of costs.
        2) How would an investor know the ETF review committee costs were no longer a cost to unit holders? Do investors need to track press releases?
        3) The June 2012 MER number is that for a 12 or 6 month period?
        The numbers stated and comparisons made in my original post are accurate for the stated time period, 2011.
        Our exchange simply demonstrates the ETF industry can do more to improve the disclosure of investment costs for the average investor. Simply stating Management Fees provides an incomplete picture.
        One final question – will Vanguard begin disclosing Portfolio Turnover Ratios for each of their ETFs anytime soon. A few of your competitors already do and this is an extremely important measure of the ETF trading style – passive/active.
        Your assistance in helping to educate us is greatly appreciated.

        Reply

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