Index funds/ETFs - Questions

[AltaRed]

The fund's ETF shares are expected to be offered with an expense ratio of 0.25%.

Seems a bit steep for a Vanguard product, no?

[DenisD]

Barclays Wins Race For All-Global Stock ETF

For those who can't wait for Vanguard. Expense ratio of 0.35%.

[Bylo Selhi]

Seems a bit steep for a Vanguard product, no?

Actually it seems quite reasonable for a new Vanguard [s]product[/s]fund. As the new fund gains assets Vanguard has traditionally shared the economies of scale by lowering MERs. C.f. VGK, VPL and even VTI. Note also that unlike the introduction of ETF share classes to existing funds, in this case they're starting from scratch with no assets.

(BTW the term "product" applied to Vanguard spawn makes St Jack squirm. In his view it relegates the offering to the status of snake oil sold by high-pressure hucksters.)

[ockham]

Barclays Wins Race For All-Global Stock ETF

For those who can't wait for Vanguard. Expense ratio of 0.35%.

These "products" are of interest to me. Outside Canada, I want to invest as simply, passively and cheaply as possible. Currently, I have a combination of VTI, VEA, and VWO. I-shares new ACWI ETF and Vanguard's new All-Global ETF (when it begins trading) certainly satisfy my "simply" and "passively" requirements, if not the "cheaply".

Besides the difference in MERs, are there other relevant differences between the two products? In particular, are the indexes they track different, or at least sufficiently different to care about? I've reviewed the two websites, but seem not deft enough to be able to answer this question.

And as to the Vanguard product, is its index universe different from some combination of VTI, VEA, and VWO?

[BRIAN5000]

SPDR Lehman Intl Treasury Bond ETF..... BWX Plus yahoo lists 14 other world bond funds/ETFS's

http://finance.yahoo.com/etf/browser/mk ... cs=1&ce=15

[adrian2]

Indexing Our Global Market Portfolio

Interesting article, including an opinion on what the proper weighting of commodities should be (not that I necessarily agree).

[parvus]

Most interesting, but it excludes foreign real estate and foreign real return bonds (as the authors note). Oh, and the Baltic index.

Still, bond and stock markets reflect, in some fashion, the cost of capital, which is presumably related to economic activity. Can the same be said of commodities? As a proxy for private economic activity on the farm?

And, in the end, while real estate may be a separate asset class, are REITs? Can they somehow capture the private (i.e., non-listed) market, say through mortgages?

[learner]

for example the td e-series funds what happens if a few companies in an index goes bankrupt who decides the new fund allocations ?

[Bylo Selhi]

That depends on the index and the company that sponsors it. For example index funds that track the S&P 500 use Standard and Poors' determination of who's in and who's out. You can find a description of the criteria they use on their website. The same applies to all the other indexes.

When a company in the S&P 500 goes bankrupt it's removed from the index and replaced by the 501st, now 500th stock that meets S&P500 criteria.

In any case, for market-capitalization-weighted indexes, as most are, the percentage weighting of each stock in the index fluctuates constantly and automatically as each stock's market-cap fluctuates.

[queerasmoi]

As well, many funds / ETFs have a preset schedule of how often they rebalance. So they may deviate a bit from the index until the date hits. It's up to the fundco to decide how much deviation is tolerable.

[Clock Watcher]

Is there a Russell 2000 or Willshire 5000 ETF trading on the TSE that is currency hedged? I am starting to get concerned about the longer term prospects of the greenback.

[Icarus]

Is there a Russell 2000 or Willshire 5000 ETF trading on the TSE that is currency hedged? I am starting to get concerned about the longer term prospects of the greenback.

XSU and XSP although the latter tracks the S&P 500. Note that the Russell 2000 index is notorious for being gamed and is probably not the best choice. Do a search on the forum.

You may also want to check out the Canadian Capitalist blog, which recently talked about the problems with currency hedged funds. XSP significantly underperformed IVV, although if the hedges worked properly then the returns should have been much closer in CAD and USD respectively. The iShares website shows a very small tracking error, which appears to be an artifact of a strange index that they use which I haven't figured out, but it isn't equal to IVV's return in CAD.

[Clock Watcher]

Is there a Russell 2000 or Willshire 5000 ETF trading on the TSE that is currency hedged? I am starting to get concerned about the longer term prospects of the greenback.

XSU and XSP although the latter tracks the S&P 500. Note that the Russell 2000 index is notorious for being gamed and is probably not the best choice. Do a search on the forum.

You may also want to check out the Canadian Capitalist blog, which recently talked about the problems with currency hedged funds. XSP significantly underperformed IVV, although if the hedges worked properly then the returns should have been much closer in CAD and USD respectively. The iShares website shows a very small tracking error, which appears to be an artifact of a strange index that they use which I haven't figured out, but it isn't equal to IVV's return in CAD.

Thank you Icarus. I wish they have currency-hedged ETFs that cover the various Russell indices (value, growth, etc.). It is too bad that the ETF business in Canada is essentially dominated by one company.

[Scoot]

Well I stumbled across this forum and it looks good so far. I am reading many posts but have some direct questions and maybe someone can give me some direct answers. I am 29 years old, married with a mortgage and some investment money.

1. Are ETF MERs the truth? I mean, ishares advertises XEG, which I bought a few weeks ago, as 0.55%. Already lost 9% but hey, 30 years to retirement.

2. How do ETFs extract the MER. They are entitled to earn a living for their service but I don't understand how. Do they sell .55% every year and keep the money?

3. I have a Qtrade RRSP account and cash account in my name. I am opening an ETRADE account for my wife for RRSP (we are both earners right now), and she is giving me power of attorney over the files... comments?

4. US equities. I'm thinking of US equities or ETFs for my RRSP account, or cash account. I understand that 1) when I sell at profit the US government will take some for witholding tax (even if I'm using RRSP), and 2) I take a double hit on the exchange fee for currency, one for buying and one for selling. What am I missing? Does that imply its better to keep it in normal cash account?

5. Unlike people here with higher balances, I don't meet the requirements (100K) for 10 dollar trades. I figure my investments should each be around 4K at a time to keep the fees at 1% (20 dollar x 2), still that's a lot. How much do you typically consider a good amount?

Thanks, look forward to discussing things on this forum!

[queerasmoi]

2. I believe the MER usually comes out of the dividends.
4. I'm not aware of the US taking a withholding tax when you sell at a profit... where'd you hear about that? There is a very very tiny tax on selling, and there is a dividend withholding tax (which is not charged in an RRSP).

[Operabob]

Can't answer all of it but can offer some insights:


1. Are ETF MERs the truth? I mean, ishares advertises XEG, which I bought a few weeks ago, as 0.55%. Already lost 9% but hey, 30 years to retirement.

2. How do ETFs extract the MER. They are entitled to earn a living for their service but I don't understand how. Do they sell .55% every year and keep the money?

Can't specifically speak to ETF MERS but mutual funds extract 1/365 of the MER per day. Many are of the opinion this is so you don't see a dramatic drop in value if they do it all in one day.

3. I have a Qtrade RRSP account and cash account in my name. I am opening an ETRADE account for my wife for RRSP (we are both earners right now), and she is giving me power of attorney over the files... comments?

4. US equities. I'm thinking of US equities or ETFs for my RRSP account, or cash account. I understand that 1) when I sell at profit the US government will take some for witholding tax (even if I'm using RRSP), and 2)

15% withholding (If you complete the W8-BEN otherwise 30%) is yearly on dividends only. Inside an RRSP my understanding is there is no withholding. On selling the profit (capital gain) is taxable to the Canadian government.

I take a double hit on the exchange fee for currency, one for buying and one for selling. What am I missing? Does that imply its better to keep it in normal cash account?

Don't know if brokers allow this but check to see if they offer a $US account then don't reconvert on trading. I buy US DRIPs and always have the option of depositing dividends in my US bank account.

5. Unlike people here with higher balances, I don't meet the requirements (100K) for 10 dollar trades. I figure my investments should each be around 4K at a time to keep the fees at 1% (20 dollar x 2), still that's a lot. How much do you typically consider a good amount?

Have you considered DRIPs or TD eFUNDs to build up assets until such time as you can get the $9.95 trades? Considering the commissions you'll be paying for ETFs eFUNDs could be a very sensible alternative.

OB

[Bylo Selhi]

Welcome to FWF!

1. Are ETF MERs the truth? I mean, ishares advertises XEG, which I bought a few weeks ago, as 0.55%. Already lost 9% but hey, 30 years to retirement.

The 0.55% is the MER. The 9% is due to the drop in price of the securities that XEG holds.

2. How do ETFs extract the MER. They are entitled to earn a living for their service but I don't understand how. Do they sell .55% every year and keep the money?

Generally they deduct the MER from dividends paid by the securities owned by the ETF. If that dividend stream isn't enough to cover the MER (unlikely) then yes, they'd have to sell securities.

3. I have a Qtrade RRSP account and cash account in my name. I am opening an ETRADE account for my wife for RRSP (we are both earners right now), and she is giving me power of attorney over the files... comments?

Nothing wrong with this but ISTM having both accounts at the same broker would make it easier to manage.

4. US equities. I'm thinking of US equities or ETFs for my RRSP account, or cash account. I understand that 1) when I sell at profit the US government will take some for witholding tax (even if I'm using RRSP), and 2) I take a double hit on the exchange fee for currency, one for buying and one for selling. What am I missing? Does that imply its better to keep it in normal cash account?

No, there is no withholding tax on the sale of US securities. There is a withholding tax on distributions and dividends paid out by US securities but RRSPs are exempt by tax treaty. Re 2) yes most discount brokers will convert US$ cash from dividends or sale of US securities to CA$ and then back again when you buy US securities. I though QuestTrade was one of the few exceptions. Anyway if you use this forum's search function you should be able to find other threads on this topic.

5. Unlike people here with higher balances, I don't meet the requirements (100K) for 10 dollar trades. I figure my investments should each be around 4K at a time to keep the fees at 1% (20 dollar x 2), still that's a lot. How much do you typically consider a good amount?

A $20 brokerage fee on 4k is around 0.5%. That's reasonable. However, as OperaBob has suggested you might want to look at TD eFunds. They have no transaction fees and very low minimums. Consider using them to build up a relatively large position in an asset class and then switching to a similar ETF. Note that inside an RRSP there is no capital gains tax on sale. Note also that TD eFunds are only available through TD, not QT or E*Trade.

[queerasmoi]

Bylo, read again: they said Qtrade, not Questrade

[Bylo Selhi]

Bylo, read again: they said Qtrade, not Questrade

I've always assumed they were the same

Oh well...

[Bylo Selhi]

Fact or Fiction? 4 ETF Myths [ETFGuide, 10Feb09]

#1 - ETFs encourage investors to become hyperactive traders...
#2 – Bid/ask spreads destroy the low cost nature of ETFs...
#3 – Short ETFs replicate the inverse long-term performance of their benchmarks...
#4 – The best ETFs to own are the popular ones with significant trading volume...

[BRIAN5000]

Lifetime ETF Death Toll Climbs to 85

http://investwithanedge.com/lifetime-et ... imbs-to-85

[Lemmings]

Can anyone suggest some etfs or funds that offer exposure to China? The only thing I know about is TD Asian growth fund.

[Doug]

Bogleheads:

The May issue of Morningstar FundInvestor reports this Morningstar study of investor underperformance (before taxes) compared with their fund category for the 10 Years ending 12/31/2008.

Category........Investor return....Total Return

Large Blend...........-9.46%.............-0.70%
Large Growth.........-9.97%.............-0.79%
Large Value...........-9.21%.............+1.43%

Mid-Cap Blend......-10.59%.............+4.49%
Mid-Cap Growth....-11.13%.............+2.19%
Mid-Cap Value......-10.62%.............+5.85%

Small Blend...........-9.95%.............+5.65%
Small Growth.......-11.11%.............+2.78%
Small Value...........-9.45%.............+6.44%

Conclusion: Simply investing in index funds, then stay-the-course, is virtually certain to outperform the average investor.

I copied this from the Boglehead forum. I don't know of any similar Canadian data, although I doubt it is significantly different. Costs and market timing probably account for most of the differences. The differences between investor returns and total returns are appalling. This type of information receives only a small fraction of the attention that it deserves.

[westcoastfella]

Can anyone suggest some etfs or funds that offer exposure to China? The only thing I know about is TD Asian growth fund.

The one I know of that is traded on the TSX is the Claymore BRIC ETF. According to Claymore, it is 36% weighted in China, the rest in BRI. I do not own it myself.

[queerasmoi]

Can anyone suggest some etfs or funds that offer exposure to China? The only thing I know about is TD Asian growth fund.

The one I know of that is traded on the TSX is the Claymore BRIC ETF. According to Claymore, it is 36% weighted in China, the rest in BRI. I do not own it myself.

Lemmings had this question answered in a different thread back in February: http://www.financialwebring.org/forum/v ... ht=#304587