Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

The country’s second-largest player in exchange-traded funds issued a news release recently to announce it was cutting the fee on one of its ETFs by 0.01 of a percentage point.

Yes, 0.01 of a point. The annual management fee on the $3.5-billion BMO Aggregate Bond Index ETF (ZAG-T) falls to 0.08 per cent from 0.09 per cent. Figure on the more comprehensive management expense ratio – the management fee is the major component here – being in the area of 0.09 to 0.13 per cent.

BMO’s fee reduction means little by itself, yet it’s highly symbolic of two important trends in the ETF business. One, overall competition is so fierce that companies are chopping fees by the micro-slice. Two, the stubbornly high cost of bond ETFs is declining to much more reasonable levels for a low interest rate world.

Story continues below advertisement

Two big competitors for ZAG are the $2.4-billion iShares Core Canadian Universe Bond Index ETF (XBB), with a management fee of 0.09 per cent and an estimated MER of 0.09 to 0.13 per cent, and the $1.6-billion Vanguard Canadian Aggregate Bond Index ETF (VAB-T), with a management fee of 0.08 per cent and an MER of 0.13 per cent. Five years ago, diversified bond ETFs typically had MERs in the 0.33 per cent range.

An analysis of the Top 100 largest mutual funds shows MERs barely moved on average over the past five years. Meanwhile, in ETF-land, they’re bludgeoning each other with fee cuts. The contrast couldn’t be more pronounced.

The downward ETF fee trend is particular welcome in the bond category. Even after a sharp rise in bond yields in the past 12 months, ZAG’s after-fee yield to maturity was just 2.6 per cent as of mid-June. The recent cut in the management fee for ZAG won’t make much difference to this yield, but it does have value. It shows that in a slow-growth world where returns are hard to come by, low-cost ETFs are an ally to investors. Let’s hope the mutual fund industry is taking notes.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies