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 Posté le: Ven Sep 06, 2013 2:10 pm Sujet du message: 3 low-cost ETFs worth a look by investors |
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{3 low-cost ETFs worth a look by investors}
People are always looking for bargains and that’s never truer than when times are tough.Perhaps that explains why exchange-traded funds (ETFs) continue to grow in popularity — they’re cheap and some are even getting cheaper. Vanguard Canada just announced that it’s reducing the management fees on two of its funds by a considerable amount. The FTSE Emerging Markets Index Fund will now charge 0.33 per cent, down from 0.49 per cent previously. And the FTSE Developed ex-North America Index Fund, which has a very good track record, drops from 0.37 per cent to 0.28 per cent. Low cost isn’t the only reason to buy a security — as with clothes, cars,[url=http://www.michael-korshandbags-outlet.org]Michael Kors Handbags[/url], meat,[url=http://www.michael-korshandbags-outlet.org]Michael Kors Outlet[/url], or wine,[url=http://www.michael-korshandbags-outlet.org]Michael Kors Handbags Outlet[/url], just because something is cheap doesn’t necessarily make it good.But if you can get quality at a bargain price, grab it! And some ETFs fall into that category.Before I give you some examples, it’s important to understand the difference between management fee and management expense ratio (MER). The management fee is the percentage of total fund assets the sponsoring company collects for overseeing the portfolio. The MER is the percentage of all fees and expenses compared to a fund’s assets. It includes the management fee.So if a million dollar fund has a one per cent management fee, it pays out $10,000 a year to the sponsor. If all other expenses such as trailer fees, brokerage commissions, accounting costs, etc. total $15,000, the total MER would be 2.5 per cent. That’s typical for an equity mutual fund.Related: Four reasons the mutual fund industry should worryETFs, which trade on stock exchanges, charge much less for management fees and keep their costs as low as possible so as to minimize MERs. “We aim to operate at cost,” said Atul Tiwari, managing director of Vanguard Investments Canada, in a telephone interview. His company is a subsidiary of U.S. giant The Vanguard Group which has amassed more than US$2 trillion in assets under management since its launch in 1975 by positioning itself as a penny-pinching operation.“Vanguard’s average expense ratio is 83 per cent less than the industry average,” the company’s website proudly proclaims. “That could mean 83 per cent less taken out of your earnings, leaving more in your account, where it belongs.”Vanguard Canada offers several ETFs that combine cheapness and quality which is why the company recently passed the $1 billion market in assets after only a year and a half in business. But it’s not alone in the bargain basement. Here are two inexpensive ETFs from competitive companies that are worth a look.iShares S&P/TSX 60 Index Fund (TSX: XIU). This is the oldest ETF in Canada (and by some accounts in the world) and is also the biggest with assets of almost $11 billion. It invests in a portfolio of the 60 largest companies listed on the Toronto Stock Exchange, making it the closest thing Canada has to the Dow. The top three holdings are all banks (Royal, TD, and Scotiabank) with blue chips like CN Rail, Suncor,[url=http://www.michael-korshandbags-outlet.org]michael kors canada[/url], Enbridge, and TransCanada in the top 10. Over the decade to July 31, this ETF returned an average of 8.12 per cent annually, handily beating the average of 6.92 per cent for the Canadian Equity category, which is mainly made up of actively-managed mutual funds. The management fee is 0.15 per cent and the MER is 0.18 per cent. BMO S&P 500 ETF (TSX: ZSP). U.S. stocks have outperformed the TSX by a wide margin in the past couple of years. This ETF offers an inexpensive way to invest in a portfolio of America’s 500 largest companies, such as Apple, Exxon Mobil, Johnson & Johnson, and General Electric. This is a new fund, launched last November, so we don’t have much of a track record to work with. But so far, it has done well with a year-to-date gain of 24 per cent as of Aug. 12. The management fee is 0.15 per cent. Since the fund has not been operating for a full year, we don’t have an MER but it will probably be about 0.18 per cent. There is a Canadian dollar hedged version of this fund that trades as ZUE. It has the same management fee but only shows a gain of 19.73 per cent this year because of the fall in the value of the loonie.Not all ETFs are cheap. In fact, some carry MERs that are well in excess of 1.25 per cent, including several in the Horizons group. So don’t assume that all ETFs are bargains. As with any other purchase, check the price tag and consider the quality of the merchandise before you buy. More columns by Gordon PapeGordon Pape is editor and publisher of the Internet Wealth Builder newsletter.
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