Skip to main content

A bond ETF you’ve probably never heard of is getting a bit cheaper.

The management fee for the Desjardin Canadian Universe Bond Index ETF (DCU-T) falls to 0.07 per cent from 0.10 per cent, effective Nov. 1.

Bonds? No one likes them right now because interest rates are rising. A fee cut of 0.03 of a percentage point? Yawn, right?

Here’s why this fee cut from Desjardins Global Asset Management is more significant than it seems. Bond exchange-traded funds are now getting nearly as cheap as equity funds, a big help in this low-yield world we live in. Every incremental decline in bond ETF fees puts a bit more money in the pocket of investors, while also seeding the ground for further fee cuts to come.

Desjardins is one of the smaller players in a crowded Canadian ETF market – DCU has assets of about $18-million, compared with $6-billion for the BMO Aggregate Bond Index ETF (ZAG-T) and $4.6-billion for the iShares Core Canadian Universe Bond Index ETF (XBB-T). Why consider DCU at all?

The low fee is as good a reason as any. ZAG’s management fee is 0.08 per cent, while XBB’s is 0.09 per cent. The all-in fee to own bond ETFs like these, as measured by the management expense ratio, is generally 0.01 of a point above the management fee. So figure on DCU having an MER of 0.08 per cent or 0.09 per cent, compared with 0.09 per cent for ZAG and 0.10 per cent for XBB.

All three of these ETFs perform the same job in portfolios in providing access to the broad bond market, including federal and provincial government bonds plus corporate debt as well. ZAG and XBB appear to have a higher corporate weighting, which is appealing right now because corporate bonds are a bit more resistant to rising rates.

DCU’s main drawback is that it doesn’t trade nearly as much as ZAG and XBB, which in turn means more of a gap between the minimum price that sellers are willing to accept and the maximum amount buyers will pay. One day this week, the bid-ask spread for DCU was three cents, while ZAG and XBB had a tight spread of one cent.

It’s totally understandable if investors stick with the tried and true in broad-market bond ETFs. But let’s hope Desjardins brings in some new money. Continuing fee competition is one of the quiet benefits of ETF investing and it needs to be encouraged as much as possible.