Fee-cutting is still a thing in ETF-land.
Not too long ago, I wrote a column about how momentum for fee-cutting in the exchange-traded fund business seemed to have stalled. If anything, fees over all do seem to be rising as a result of a growing tilt toward expensive sector-oriented funds as opposed to megacheap index-trackers. But costs for those index-trackers are still being trimmed, if just a bit.
The management expense ratio for two Vanguard ETFs tracking the domestic market – FTSE Canada All Cap Index ETF (VCN-T) and FTSE Canada Index ETF (VCE-T) – is now being reported at 0.05 per cent. That’s down a tick from the 0.06 per cent that was listed when I put the 2021 ETF Buyer’s Guide together back in the winter and early spring. Two big competitors to these funds are at 0.06 per cent – the BMO S&P/TSX Capped Composite Index ETF (ZCN-T) and the iShares Core S&P/TSX Capped Composite Index ETF (XIC-T).
There’s an even cheaper Canadian equity ETF – the Horizons S&P/TSX 60 Index ETF (HXT-T), which has an MER of 0.03 per cent. As reported in the ETF Guide, the MER was 0.04 per cent. HXT is more specialized than the aforementioned funds in that it’s designed so its shares rise by a total return amount reflecting price changes and dividends bundled together. No dividend income is passed directly to unitholders, as it generally is with broad-based equity ETFs.
All of these fee cuts are more significant than they might appear at first glance. They tell us ETF companies are still competing hard on fees for index-tracking funds, even as they keep creating pricey specialty funds to capitalize on current bull market conditions.
ETFs tracking core stock indexes are one of the best deals in investing because they provide instant, transparent diversification in a small, exceedingly well-priced package. Whether you own VCN, VCE, ZCN, XIC or HXT, you’re reproducing the bulk of the Canadian market inside your portfolio.
One more benefit to these ETFs is that the companies issuing have decided pricing is how they’ll compete with each other. Let’s hope they keep hammering each other with fee cuts.
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Rob Carrick