The exchange-traded fund business used to work in a principle that can be summed up as: build it cheap and investors will come.
The emphasis in ETF-land is much more about pleasing investor niche audiences – people who want income, access to hot stock market sectors and such. But a core of cheap funds remains. If you look hard enough, you can get your fees down to the ultra-cheap level.
Compressing fees to the max is the point behind the Freedom 0.11 portfolio, which is a diversified grouping of four ETFs with a weighted aggregate MER of 0.11 per cent. Cheap fees are a reliable way to set yourself up for investing success, but what about the Freedom 0.11 Portfolio in particular?
The verdict on the Freedom 0.11 Portfolio is favourable. The weighted aggregate one-year total return to Dec. 31 was 14.3 per cent, while the annual average three-year return was 6.4 per cent.
The four Freedom 0.11 blueprint::
- 20 per cent in the Desjardins Canadian Universe Bond Index ETF (DCU-T): The MER for this fund is 0.08 per cent.
- 30 per cent in the iShares Core S&P/TSX Capped Composite Index ETF (XIC-T): The MER for this fund is 0.06 per cent
- 25 per cent in the Franklin International Equity Index ETF (FLUR-NE): The MER here is 0.1 per cent
- 25 per cent in the Vanguard S&P 500 Index ETF (VFV-T): The MER is 0.09 per cent
As originally conceived last year, Freedom 0.11 was built with an asset mix of 70 per cent stocks and 30 per cent bonds. For this exercise, the mix was tweaked to 80-20 to allow for comparisons to asset allocation ETFs with a growth mandate. These products typically use an 80-20 mix.
The $1.9-billion iShares Core Growth ETF Portfolio (XGRO-T) made 14.9 per cent for the 12 months to Dec. 31 and 5.6 per cent on an average annual basis for the three-year period. The $4.6-billion Vanguard Growth ETF Portfolio (VGRO-T) made 14.8 per cent and 5.4 per cent over the past one- and three-year periods. Freedom 0.11 lagged a bit in the past year, but outperformed over the longer time frame.
Frankly speaking, an asset allocation ETF is a great way to go in ETF investing. The fees are in the 0.2 to 0.4 per cent range, a fair cost for the simplicity they offer. Just buy units of these funds and your money is automatically spread amongst the fully diversified underlying funds. The headline MER covers it all.
If you’re committed to the lowest fees possible, consider Freedom 0.11. One final cost consideration is brokerage fees. Several brokers charge nothing to at least buy ETFs, but it’s possible to pay as much as $9.99 to buy or sell.
Rob Carrick