Exchange-traded funds have built a huge and growing franchise on their low fees, but there are some higher-cost outliers you should watch out for.
Some are niche products issued by companies that seem to be hoping investors bent on chasing a particular trend will forgive the high cost. And some are foundational funds that simply haven’t benefited from the long-term trend toward lower ETF costs.
Two examples of this latter type of expensive ETF were inadvertently revealed in some news from BMO ETFs about changes in the underlying index tracked by some of its bond funds. The BMO Government Bond Index ETF (ZGB-T) and BMO Corporate Bond Index ETF (ZCB-T) are among a group of funds moving to benchmark FTSE Canada bond indexes from similar Bloomberg-Barclays indexes.
The switch means that ZGB and ZCB will track the same index as competing products from BlackRock’s iShares family. In each of these two cases, the iShares counterpart carries a fee that seems out of step with today’s ETF pricing.
ZGB’s management expense ratio is 0.17 per cent, while the iShares Canadian Government Bond Index ETF (XGB-T) comes in at 0.39 per cent. ZCB’s MER is also 0.17 per cent, while the iShares Canadian Corporate Bond Index ETF (XCB-T) has an MER of 0.44 per cent.
These iShares funds are by no means tiny. Together, XGB and XCB have assets of about $2.4-billion. A lot of investors seem fine with the fees for these funds, even as low yields reduce the income flow from bond ETFs. Low fees have never been more important than they are today in choosing bond ETFs.
The iShares ETF franchise has done a lot to push the cost of ETF investing lower over the years and its products are generally priced very competitively. XCB and XGB are cost outliers that offer an important lesson. Even in ETF-land, you have to be vigilant about how much you pay for a fund.
One more example comes from BMO itself – the BMO Equal Weight Banks Index ETF (ZEB-T), with an MER of 0.61 per cent and $1.4-billion in assets. That’s a hefty price to pay for an ETF holding six bank stocks.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Park Lawn Corp. (PLC-T) This stock that operates in the death-care business has a unanimous buy recommendation from nine analysts that have issued recent research on the company. The average one-year target price implies the share price may rally nearly 17 per cent over the next year to a new record high. In addition to potential price gains, PLC pays its shareholders a stable monthly dividend. Jennifer Dowty reports. (for subscribers)
Mullen Group Inc. (MTL-T) Shares in this trucking company hit a 52-week high this week after it raised its dividend and forecasted a stabilization of its business in 2021. Analysts see further gains ahead. Brenda Bouw reports. (for subscribers)
Short sales on the TSX: What bearish investors are betting against
Except for a few rallies along the way, short sellers on the Toronto Stock Exchange have been in full retreat in recent months. Larry MacDonald reports on the latest positioning by shorts, including by sector, and this week also takes a look at stocks foreigners are betting the most against. (for subscribers)
This market indicator is pointing to higher bond yields and a rally ahead in bank stocks
A widely used market indicator is underscoring the potential for sharply higher Canadian bond yields in what would be positive news for bank stocks but a major headwind for utilities. Scott Barlow has this analysis. (for subscribers)
Options investors swarm U.S. value stocks on hopes of economic reopening
Retail investors are stepping up their options buying, pouring money into airlines, small caps and other potential beneficiaries of a COVID-19 vaccine even as U.S. stocks hover near record highs. April Joyner of Reuters reports. (for subscribers)
Planning some tax-loss selling? Rally in losing stocks changes playbook
The worst performing stocks of the pandemic have stormed back in recent trading, throwing a popular end-of-the-year portfolio strategy into question. Tim Shufelt examines the latest complication for those looking to do some tax-loss selling this year. (for subscribers)
Others (most for subscribers)
Thursday’s Insider Report: Director adds to his position in this emerging copper producer
Friday’s Insider Report: Director invests nearly $1.7-million in this stock yielding 4%
Number Cruncher: Twelve U.S. equity funds that have outshone their peers
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
Ask Globe Investor
Question: I’m 70 years old and have shares with a $25,000 capital loss in a registered retirement savings plan. Is there a way to use this loss for tax purposes?
Answer: No. Investment losses in an RRSP, tax-free savings account or other registered account cannot be used to offset taxable capital gains in a non-registered account.
What’s up in the days ahead
The euphoria surrounding the IPOs of DoorDash and Airbnb this past week is reminiscent of the Internet mania of the late 1990s. But it’s perhaps even more problematic. Ian McGugan will delve into the topic this weekend.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff