The balanced ETF is arguably one of the best investing innovations of the century – all 20 years of it.
But companies in the exchange-traded-fund world are failing to clear up a key point about this product that keeps tripping up investors. It’s all about the fees, which is ironic because low, easy to understand fees are one of the biggest reasons to invest in ETFs rather than mutual funds.
Dozens of times, investors have asked me to sort out the fees on balanced ETFs. The latest query comes from a B.C. reader who is helping someone transition to do-it-yourself investing using ETFs. The two of them are looking at balanced ETFs because of the low management expense ratios. But they’ve noticed that balanced ETF portfolios are built using a mix of stock and bond ETFs, each with its own MER. “So the question is this: Is the MER you see for the balanced ETF really the only fee you are paying?” the reader asked.
The answer to this question is yes: The published MER for a balanced ETF is the sole fee investors need to concern themselves with, other than brokerage commissions for buying and selling ETFs. The fees for the underlying ETFs in the portfolio are covered by the published MER.
Question to the ETF industry: Why don’t you make this clear and explicit on the balanced ETF profiles on your website? Just add a little note saying something like: “This MER includes the cost of the ETFs in the portfolio.”
Investors often come to ETFs having fled mutual funds because of the high fees. These investors are skeptical and cranky because of their dissatisfaction with their investing experience. It’s not confidence-inspiring to pivot to ETFs and find the industry’s best product, the balanced ETF, has an ambiguous fee structure.
The typical balanced ETF has an MER in the low 0.2 per cent range, which is an incredible value. You get a portfolio with a conservative, middling or aggressive mix of stocks and bonds, and you get automatic rebalancing to keep the mix in line. Balanced ETFs could well be exactly what someone starting life as a DIY investor needs. Why get the relationship off to a rocky start with unclear fee disclosure?
-- Rob Carrick
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