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Mutual Fund News

Some perspective on those higher cost ETFs

rcarrick@globeandmail.com

What we're looking at

Exchange-traded funds are the frugal investor's best friend because they're cheap to own, but there's still a wide variation in fees among ETFs. Here, we look at the highest-cost ETFs and how they have performed over the past year.

Our screen

We present a list of the costliest to own ETFs listed on the Toronto Stock Exchange, as measured by management expense ratio. To put the fees of these funds in perspective, we have provided MER and return data for comparable mutual funds. Note, leveraged and inverse ETFs have been excluded here. More on them Friday.

What we found

With some modestly judicious fund picking, you could build a portfolio of ETFs with an overall MER of less than 0.5 of a percentage point or so. All of the ETFs on this list are well above that level. Does mean investors should avoid them?

One-year returns are by no means a reliable gauge of performance, but here they suggest that high-cost ETFs can deliver. In fact, many of the funds on our list rank in the first or second quartile over the past year. Quartiles divide funds in a category into four groups by performance - one is best and fourth is worst.

Comparatively high ETF fees are unavoidable if you're looking at niches like commodities or emerging markets, or if you want actively managed ETFs. Several of the Horizons ETFs on this list dispense with the traditional index-tracking function of ETFs and instead employ a manager who selects securities.

Just remember that low fees are by far the biggest benefit of investing in ETFs. Diluting this advantage with high-cost ETFs shouldn't be done lightly.

*****

HIGH-COST ETFS

Fund Ticker MER (%)1 year annual return to Feb. 29 (%)1-year return quartileCategoryMedian MER for comparable mutual funds (%)1 year avg. return for comparable mutual funds (%)
Horizons Income Plus ETF HAP-T 1.511.52Alternative Strategies2.39-4.9
Horizons Gartman ETF HAG-T 1.31-16.74Alternative Strategies2.39-4.9
Horizons S&P/TSX 60 130/30 ETF HAH-T 1.08-5.53Alternative Strategies2.39-4.9
Horizons Seasonal Rotation ETF HAC-T 1.047.31Alternative Strategies2.39-4.9
iShares Cdn. Financial Monthly Income ETF FIE-T 1.00-3.43Cdn. Equity Balanced2.34-2.3
Horizons Balanced ETF HAA-T 1.00-2.12Cdn. Equity Balanced2.34-2.3
Horizons North American Growth ETF HAW-T 1.007.21U.S. Equity2.462.5
Horizons Global Dividend ETF HAZ-T 1.007.01Global Equity2.59-2.3
Horizons Dividend ETF HAL-T 1.000.42Cdn. Div'd/Income Eqty2.17-1.1
Horizons North American Value ETF HAV-T 1.005.52U.S. Equity2.462.5
iShares S&P CNX Nifty India Index Fund XID-T 0.99-7.1n/aMisc. - Geog. Equity2.63-7.1
Horiz. Betapro S&P 500 VIX Short Term Futures HUV-T 0.97-13.1n/aMiscellaneous - Other0.90-9.0
iShares Managed Futures ETF CMF-T 0.95Alternative Strategies2.39-4.9
iShares Broad Commodity ETF CBR-T 0.93-4.0n/aMisc. - Commodity0.841.1
iShares Natural Gas Commodity ETF GAS-T 0.90-52.0n/aMisc. - Commodity0.841.1
Horizons Gold Yield Fund HGY-T 0.9012.4n/aMisc. - Commodity0.841.1
Horizons Enhanced Income Gold Prod. ETF HEP-T 0.87Alternative Strategies2.39-4.9
iShares China Index Fund XCH-T 0.85-2.81Greater China Equity2.69-6.3
Horizons Enhanced Income Energy ETF HEE-T 0.84Alternative Strategies2.39-4.9
Horizons Enhanced Income Int'l Equity HEJ-T 0.84Alternative Strategies2.39-4.9
Horizons COMEX Copper ETF HUK-T 0.84-17.2n/aMisc. - Commodity0.841.1
iShares Balanced Growth CorePortfolio ETF CBN-T 0.84-1.61Global Equity Balanced2.48-1.7
iShares Global Mthly Advantaged Dividend ETF CYH-T 0.830.11Global Equity2.59-2.3
Horizons Enhanced Income US Equity USD ETF HEA.U-T 0.83Alternative Strategies2.39-4.9
iShares MSCI Emerg. Markets Index Fund/Cda XEM-T 0.82-0.72Emerg. Markets Equity2.76-2.5
Source: National Bank Financial, Bloomberg, Morningstar

© 2007 The Globe and Mail. All rights reserved.

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