BetaPro Management Inc. plans to roll out Canada's cheapest exchanged-traded fund on Wednesday - a move aimed at taking away market share from the giant iShares S&P/TSX 60 Index Fund .
The upstart ETF provider will charge a bargain-basement 0.07 per cent fee for its new Horizons BetaPro S&P/TSX 60 ETF, which will similarly track Canada's largest 60 stocks.
That compares with a 0.17 per cent fee charged by its rival, which is the largest ETF in this country with about $11-billion in assets. Bank of Montreal also offers the BMO Dow Jones Canada Titans Index ETF which has a 0.15 per cent fee.
The new BetaPro ETF will trade under the symbol HXT on the Toronto Stock Exchange.
Unlike the market-cap weighted iShares ETF, which aims to mimic the S&P/TSX 60 by buying individual securities, the new BetaPro ETF seeks to offer a total return that is accomplished through a "total return swap agreement" with National Bank Financial.
The bank also owns a minority stake in Beta's affiliated AlphaPro Management Inc., which offers actively managed ETFs.
The benefit of the BetaPro offering is that it will be less expensive for investors, and the "tracking error should be greatly reduced when compared with competing products," Pat Chiefalo, director of derivatives and structured products research at National Bank Financial, said in a bank daily bulletin.
Investors will not receive any regular distributions because the dividends will be reinvested, and thus "may not in general be subject to the tax implications relating to the S&P/TSX 60 common dividends," Mr. Chiefalo wrote.
Investors "face up to 10-per-cent derivative counterparty credit risk and potentially more if additional counterparties are used," and the BetaPro ETF is "not suitable for investors seeking yield," he added.
Investor Education: ETFs