Home Breadcrumb caret Investments Breadcrumb caret Market Insights Breadcrumb caret Products Implications of ETF price wars Consider low-cost ETFs when you’re helping clients build portfolios. November 26, 2014 | Last updated on November 26, 2014 4 min read In October, Vanguard cut fees for 11 of their 21 TMX-traded ETFs, partly in response to earlier reductions by rivals iShares and BMO. In September, State Street Global Advisors cut fees for 15 of their U.S.-traded ETFs. That included a 40% reduction to their most popular S&P 500 offering (SPY) from 0.15% to 0.09%. Since SPY has about $172 billion in assets, this price decrease represents $103 million in forgone revenue. Rivals have been clawing at market share with lower fees; iShares’ Core S&P 500 (IVV) is at 0.07% and Vanguard’s S&P 500 (VOO) is at 0.05%. No sponsor can rest on past successes and investor loyalty can, to an extent, be bought. The hardest truth for portfolio managers is to admit that much of investing has become commoditized. While alternative investing like private equity, infrastructure and some hedge fund strategies continue to charge premium fees, mainstream asset allocation is becoming cheaper. The most obvious result is that investors benefit. Costs are one of the few certainties in the investment business, so lowering them is the most reliable way to improve returns. Canadian investors have had access to Horizons’ swap-based S&P TSX 60 (HXT) with a 0.05% fee (net of rebate) since Q4 2010. Today, six Canadian equity ETFs offer a 0.05% management fee (see Table 1 below). Behold the 12-basis-point portfolio Each table shows TSX-traded ETFs with annual management fees under 0.20% for Canadian, U.S. and international equity. Equity ETFs are listed by market capitalization as of October 2014, and Canadian fixed income is listed by duration. For less than 0.12% per year, an investor can now access a well-diversified 60% equity, 40% bond portfolio: 20% Canadian equity (management fee of 0.05%), 20% U.S. equity (0.10%), 20% international equity (0.20%), 40% Canadian bonds (0.12%). An all-Canadian version would cost less than 0.08%. An investor with $250,000 can get a diversified global portfolio for $300 a year plus commissions. A balanced mutual fund would cost $5,000 (assuming a 2% fee) by comparison, while a balanced portfolio of index funds (assuming a 1% fee) would cost $2,500. Advisors can leverage time, a scarce resource, by using algorithms to manage investments. In the U.S., some investment advisors are embracing systems similar to those used by robo-advisors to be sure a consistent discipline is applied to client portfolios. If establishing, monitoring and rebalancing a portfolio can be done automatically, more time can be spent developing relationships and gathering assets. In short, client-focused advisors who embrace the efficiencies from unbundling investment services and commoditizing money management will benefit from ETF price wars. Table 1: Canadian equity ETFs with 0.05% management fees *Swap-based Symbol Yield Holdings Market Capitalization iShares Core S&P/TSX Capped Composite XIC 2.477% 251 1,731,788,000 BMO S&P/TSX Capped Composite Index ETF ZCN 2.675% 252 1,229,606,582 Horizon S&P/TSX 60 Index ETF HXT* N/A N/A 627,475,406 Horizon S&P/TSX 60 Index ETF (US) HXT/U* N/A N/A 570,956,923 Vanguard FTSE Canada Index ETF VCE 2.621% 75 263,384,000 Vanguard FTSE Canada All Cap Index ETF VCN 1.652% 243 124,671,000 Table 2: Low-cost U.S. equity ETFs *Swap-based Symbol Mgt. Fee Yield Holdings Market Capitalization iShares Core S&P 500 Index (CAD) XSP 0.10 1.601% 504 2,307,696,000 BMO S&P 500 ETF ZSP 0.10 1.373% 503 1,581,292,937 BMO S&P 500 ETF (CAD) ZUE 0.10 1.644% 504 563,400,415 Vanguard US Total Market (CAD) VUS 0.16 1.455% 3,742 233,936,400 Vanguard US Total Market Index VUN 0.17 1.287% 3,742 216,109,600 Horizons S&P 500 Index ETF (CAD) HXS* 0.17 N/A N/A 195,572,543 Horizons S&P 500 Index ETF HXS.U* 0.17 N/A N/A 174,950,948 BMO S&P 500 ETF (USD) ZSP.U 0.10 1.464% 503 74,476,060 Vanguard S&P 500 Index ETF (CAD) VSP 0.08 1.54% 505 71,740,000 Table 3: Low-cost international equity ETFs Symbol Mgt. Fee Yield Holdings Market Capitalization BMO MSCI EAFE (CAD) ZDM 0.20 2.324% 441 672,941,892 Vanguard FTSE Dev. ex North America (CAD) VEF 0.20 2.697% 1,370 189,744,000 iShares Core MSCI EAFE IMI Index ETF XEF 0.20 2.298% 1,602 185,320,000 Vanguard FTSE Developed ex North America VDU 0.20 2.793% 1,370 137,728,150 BMO MSCI EAFE Index ETF ZEA 0.20 2.507% 464 130,315,840 Table 4: Low-cost Canadian fixed-income ETFs *Swap-based Symbol Mgt. Fee Yield Duration Market Capitalization iShares Core Canadian Long Term Bond XLB 0.18 3.845% 14.05 yrs 97,104,000 Vanguard Canadian Aggregate Bond Index ETF VAB 0.12 2.999% 7.4 yrs 154,330,000 Horizons Canadian Select Universe Bond ETF HBB* 0.15 N/A 7.21 yrs 10,449,425 BMO Discount Bond Index ETF ZDB 0.20 2.036% 7.03 yrs 20,111,000 iShares Core High Quality Canadian Bond XQB 0.12 2.894% 6.14 yrs 65,952,000 iShares 1-10 Year Laddered Government Bond CLG 0.16 3.404% 4.3 yrs 38,044,500 First Asset 1-5 Year Laddered Govt Strip Bond BXF 0.20 1.727% 3.37 yrs 5,060,000 iShares 1-5 Year Laddered Government Bond CLF 0.17 3.561% 3.02 yrs 972,216,000 BMO Short Corporate Bond Index ETF ZCS 0.12 3.194% 2.74 yrs 749,904,913 iShares Core Candian ST Corp Maple Bond XSH 0.12 3.120% 2.71 yrs 176,398,000 Vanguard Canadian Short-Term Corp Bond VSC 0.10 3.017% 2.7 yrs 411,321,000 Vanguard Canadian Short-Term Bond Index ETF VSB 0.10 2.445% 2.7 yrs 290,043,000 iShares Core ST High Quality Canadian Bond XSQ 0.12 2.601% 2.67 yrs 8,016,000 PowerShares 1-3 Year Laddered Floating Rate PFL 0.20 2.706% 0.5 yrs 3,003,000 RBC Target 2014 Corporate Bond Index ETF RQB 0.20 3.395% 0.12 yrs 15,988,500 Purpose High Interest Savings ETF PSA 0.11 1.295% N/A 80,032,000 All figures as of October 15, 2014 by Mark Yamada, president of PUR Investing Inc., a registered portfolio manager and software development firm. Disclosure: PUR Investing Inc. is a sub-advisor and portfolio provider for Horizons ETFs. Save Stroke 1 Print Group 8 Share LI logo