Forget low cost - the latest development in ETF fees veers is darn close to no cost.
Horizons ETFs has announced that the management fee for the Horizons S&P/TSX 60 Index ETF (HXT-T) will effectively fall to 0.03 per cent from 0.05 per cent on Oct. 1. The all-in cost of owning this ETF will be a little higher as a result of sales taxes – let's say 0.06 per cent. Even so, this price cut is noteworthy. It means that even after a round of fee reductions last year, Canada's ETF companies are still game to compete on costs. For cost-conscious investors, it's fabulous news.
HXT is a popular ETF with assets of roughly $516-million, but it's not for everyone because of its total-return structure. Using derivatives to track the S&P/TSX 60 index of big blue chips instead of holding individual stocks, it pays no dividends. Instead, shares of HXT rise and fall by the changes in the underlying stocks plus the dividend yield. The benefit here is no taxable dividend payouts and a low-cost structure that keeps fees low. The down side is no dividend income, and a level of complexity that will turn off some investors.
Horizon's approach to cutting fees on HXT is to offer rebates off the posted management fee of 0.07 per cent, rather than simply re-stating the fee at 0.03 per cent. This suggests the fee could rise back to old levels at any time, but it's worth noting that Horizons has had a rebate in place for years now without any backtracking. Anyway, the level of competition in the ETF sector for mainstream indexes is pretty intense these says. Horizons cut the management fee for HXT to 0.05 per cent from 0.07 per cent a ways back, and other firms are now in line with that. BMO, BlackRock's iShares family and Vanguard now offer ETFs tracking the broad Canadian stock market with management fees of 0.05 per cent.
If you hold any of these ETFs, it makes no sense to sell and buy something else with fees that are 0.02 of a percentage point lower. It's a different story if you have new money to invest. Horizons is claiming to have the lowest cost investment fund in Canada in HXT, and that's a selling point.
Rob Carrick