In the vanguard of lower fund fees – the globe and mail

Another way to help investors understand more about fees is to start a roll call of low-cost investment companies. Msci ltd The Colonel Blimps in the mutual fund industry will hate this because their business model is built on charging high fees. What is msci A few companies recognize the importance of keeping costs low for investors, and we’ll catch up with them gradually in this column through the year.


Let’s start with a newcomer to Canada, Vanguard, a mutual fund and exchange-traded fund giant that has been a global force for lower fees. Msci world Vanguard is not the lowest-cost ETF company in every category, but it has the most consistently cost-competitive lineup in the Canadian market.

The background here is that Vanguard isn’t a traditional investment company, with shareholders who demand rising profits. Msci world vs acwi Instead, Vanguard is owned by its funds, which are in turn owned by investors.

“We call it a mutual structure,” said Atul Tiwari, managing director of Vanguard Investments Canada Inc. Msci emerging markets index historical data “Since we’re not a public company, we don’t have quarterly earnings pressure, and since we’re not a private company in terms of being owned by a family or a few people, we don’t have to meet their interests or expectations. Msci world chart 30 years Ultimately, what this does is align our interest squarely with those of our clients, the fundholders.”

Now, some caveats: Vanguard’s TSX-listed lineup of 11 ETFs is fairly basic, its Canadian ETF customers pay higher fees than Americans and it doesn’t always use the most recognizable indexes for its ETFs. Etf msci It’s not a flawless company, but it is one with a unique emphasis on keeping fees low.

The ETF company Vanguard is client-owned, which means there are no shareholders who demand rising profits. Msci emerging markets minimum volatility index The result is some of the lowest-cost ETFs available. Msci world small cap etf Here’s a selection of ETFs that Vanguard’s Canadian subsidiary has listed on the TSX.

Mr. Msci world growth Tiwari said the company operates at cost and charges only what’s required to run its mutual funds and ETFs. Msci russia etf In 2011, he said, the difference between Vanguard’s fees and the median industry cost in the United States amounted to $15.7-billion (U.S.). Msci europe “We say that’s money that stays in client’s pockets.”

Industry figures show Vanguard has over the past year or so captured a small $418-million (Canadian) share of the $54-billion in total ETF assets here in Canada. Ishare msci world In the U.S. Msci index world market, where it has been offering ETFs for more than a decade, Vanguard has been a major success story.

The company is the third-ranked player both in the U.S. Msci world stock index ETF market and globally behind a pair of much more established players – BlackRock’s iShares family and State Street’s SPDR lineup – and it has two of the most popular ETFs on a global basis. Msci emerging markets index fund The Vanguard MSCI Emerging Markets ETF (VWO) is third-ranked by assets, and the Vanguard Total Stock Market ETF (VTI) is ranked ninth.

In Canada, the most popular of Vanguard’s ETFs include the MSCI Canada Index ETF (VCE) and the MSCI Emerging Markets Index ETF (VEE). Msci research VCE has a management fee of 0.09 per cent, which compares to 0.25 per cent for the iShares S&P/TSX Capped Composite Index Fund (XIC) and 0.15 per cent for the BMO S&P/TSX Capped Composite Index ETF (ZCN).

Management fees include most, but not all, of the costs associated with owning an ETF. Msci index meaning The management expense ratio is a more inclusive measure of fees, but several Vanguard Canada products are too new to have produced an accurate MER figure. Msci world healthcare index etf The Vanguard funds that have been around long enough to produce an MER could soon be falling in cost.

Mr. Msci index data Tiwari explained that the MER for Vanguard ETFs includes three components – the management fee, HST on the management fee, and fees and costs associated with an independent review committee, which is required by regulators to monitor any conflicts of interest. Meaning of msci Vanguard started in Canada by charging the cost of the review committee to the fund, but it stopped doing this in August. Msci eafe index MERs for Vanguard funds should decline by roughly 0.03 to 0.08 of a percentage point as a result of this change.

Vanguard’s goal is to have MERs that are based on the management fee plus 0.01 or 0.02 of a point to cover HST. Db x trackers msci world index etf MERs charged by other fund companies may include the cost of currency hedging in some cases, but Vanguard eats this cost rather than passing it on. Msci world index dividend yield “We didn’t want investors to make the decision on whether to hedge or not hedge on costs,” Mr. Msci index fund Tiwari said. Index msci “We want to be neutral on cost, so it’s up to the investor in terms of how they want to run their portfolio.”

More of Vanguard’s low-fee militancy can be seen in a recent move affecting four of its TSX-listed products and 22 funds listed on the New York Stock Exchange. Msci barra index performance These ETFs will be converted from indexes maintained by MSCI, a global giant, to indexes created by FTSE and the University of Chicago’s Center for Research in Security Prices (CRSP).

The shift has been framed as a way of basing Vanguard ETFs on more widely diversified indexes. Msci index fact sheets However, there’s also speculation that the licensing costs set out in the deal signed between Vanguard and FTSE-CRSP will create room for lower fees.

Vanguard’s aggressiveness in keeping fees low actually benefits all ETF investors. World index msci Both in Canada and the United States, competing ETF providers have been lowering the cost of owning their products. Msci acwi ex us index performance For some specific examples, check out this post on the ETF Insight website.

In the U.S. Msci world energy index market, Vanguard was able to piggyback its ETF business on top of a highly successful, long-standing index mutual fund business. Msci emerging markets index components Here in Canada, the company is much less well known and thus has some work to do in building its profile with advisers and investors.

Vanguard’s lower Canadian profile is reflected in the modest trading volumes of many of its TSX-listed ETFs in comparison to more established products from the iShares, BMO and Horizons families. Msci world index definition Buy-and-hold investors needn’t worry about this, though. Msci world data Vanguard trading volumes are adequate now, and they’ll pick up as more investors and advisers discover them.

It’s cost where Vanguard ETFs really stand out. Msci world index performance Fees are among the lowest in the industry already, and there’s solid potential for them to decline further. Msci world definition If you want to control your investing costs, Vanguard is an ally.