Can you tell the difference between the management fee for an exchange-traded fund and the management expense ratio?
A Globe reader was stumped by these two terms and had the good sense to ask for help. “Never before purchased ETFs,” he wrote. “Turning 80 and noticed both management and MER fees. How are they applied and at what frequency?”
The essence of ETF goodness is low fees – vastly lower than mutual funds. But it’s easy to get confused about ETF fees because of the way some companies disclose them on their websites.
The management fee is what you pay the manager or issuer of an ETF for the work it does in managing and administering the fund. Take the management fee and add in a few extra costs, notably GST or HST, and you end up with the management expense ratio, or MER.
The MER is the percentage of a fund’s assets paid out to cover the costs of running the fund on an annual basis. Investors don’t actually pay the MER – it’s deducted from gross returns by the ETF company. Returns reported to investors have already had the MER deducted.
There’s a third fee to be aware of with ETFs, and mutual funds for that matter. It’s the trading expense ratio, or TER, which is an accounting of the costs a fund incurs in buying and selling securities. Basic ETFs – the kind that track the most popular indexes and have the lowest fees – tend to have TERs of zero or close to it. TERs can be more of a factor in ETFs that use active stock-picking.
ETF companies are generally, though not always, good about disclosing management fees and MERs in their online fund profiles. Some play the game of showing the management fee only, which seems evasive. If you don’t see the MER in an online profile, find the link to download a fund’s regulatory documents and look for the most recent management report of fund performance.
ETF issuers are required to show recent and past MERs and TERs in their management reports. The ideal ETF is one with a low fee that has been getting lower over time.
--Rob Carrick, Globe Investor
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Stocks to ponder
Quebecor Inc. (QBR.B-T) For long-term investors, the stock has delivered solid returns rallying approximately 600 per cent over the past decade from below $5 to over $32. Year-to-date, the share price is up nearly 13 per cent. The stock has 10 buy recommendations with an expected price return (not including the dividend yield) of over 10 per cent. Jennifer Dowty profiles the stock, which is looking increasingly attractive on the charts.
Reitmans (Canada) Ltd. The Contra Guys are holding on to the stock, but, with shares in a sharp slide, they are sounding a lot less confident of this holding.
The Rundown
Searching for value momentum plays
For bargain-hunting value investors, watching the stock market’s more or less steady climb higher over the past few years must have felt like finding a stray $20 bill on the ground – right next to a grizzly bear. Buying stocks when their prices are on an upswing would seem to be just as risky as reaching near the grizzly for that $20 bill. But many value investors have been able to make up for underperforming value strategies by taking the plunge into momentum investing for part of their portfolios. John Reese explains, and has some value play suggestions that take momentum into account.
A crucial Fed meeting for markets
The Federal Open Market Committee meeting next week is shaping up as a pivotal one for Wall Street, with stocks primed for a selloff should the Fed fail to take an even more dovish tilt after policymakers raised expectations for a rate cut in recent weeks. Read more from Reuters.
Winning health-care stocks
U.S. health-care investors have found success this year buying stocks of companies whose products improve eyesight, treat pets and fix crooked teeth, all viewed as unlikely to fall victim to political and regulatory issues pressuring a wide swath of the sector. Read more from Reuters.
Money managers pour money into Chinese stocks
China may be an odd choice for investors seeking shelter from a Sino-U.S. trade war. Yet, money managers in Asia are pouring funds into Chinese stocks as the long-term promise of a growing middle class trumps more immediate fears about tariffs. Read more from Reuters.
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Friday’s Insider Report: CEO invests $1-million in this beaten-down stock
Thursday’s Insider Report: CEO invests $390,000 in this oversold stock yielding over 6%
These eight stocks offer sustainable dividends - and they’re bricks-and-mortar retailers
Globe Advisor
Investors with larger accounts stand to benefit from mutual fund companies’ ongoing efforts to reward loyalty by reducing the management fees on product offerings. Shirley Won explains.
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Ask Globe Investor
Question: If I withdraw shares from a RRIF and transfer them to a tax-free savings account, does the value of those shares affect my TFSA contribution space?
Answer: Yes. If you withdraw shares with a market value of, say, $5,000 from your RRIF and deposit them into your TFSA, the effect on your TFSA contribution room would be the same as if you contributed $5,000 in cash. Keep in mind that, similar to RRSPs, the gross amount of the in-kind RRIF withdrawal is added to your income, although with RRIFs only the portion of the withdrawal above the required minimum is subject to withholding tax.
--John Heinzl
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What’s up in the days ahead
Canadian companies, flush with cash and reluctant to spend on expansion, are buying back their own shares at a furious pace – 50 per cent higher than the previous peak, by one measure. Tim Shufelt will explain.
Click here to see the Globe Investor earnings and economic news calendar.
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