Low Cost ETFs – Canadian Vanguard ETFs

With the rising popularity of ETFs, more ETF products are being released which brings more competition and better value for investors. I’ve written about low cost ETFs before and put together a diversified low cost ETF portfolio. However, the landscape has changed with Vanguard ETFs coming to Canada.

Vanguard has been around for a while and are well known for low cost ETFs in the US. Some popular U.S based Vanguard ETFs that I like are:

  • VTI – Total US stock market index with over 3000 stocks – MER: 0.06%
  • VWO – FTSE Emerging markets – MER: 0.18%
  • VEA – MSCI EAFE index (Europe and Pacific) – MER: 0.12%
  • VXUS – MSCI All Country (except US) – MER: 0.16%
  • VIG – US Dividend Achievers – MER: 0.13%

So if you have Canada covered, for low cost US and international exposure, a combination of VTI and VXUS would do the trick.  In fact, my wife’s RRSP holds both.

Now that we have some context, lets talk more about the Canada’s newest set of ETFs launched by Vanguard which have low MERs compared to other the competition.

Canadian Vanguard ETFs

Canadian Index

Canadian index ETFs have come a long way since XIU was introduced.  Vanguards version is the MSCI Canada index ETF (VCE) that has 97 holdings and a very low MER of 0.09% (vs. 0.15% for XIU).  Note that the Canadian index space is very competitive with Horizons S&P/TSX 60 Index ETF offering their ETF with a MER of 0.07%.

U.S Index

My preference for broad based U.S coverage is VTI with a low MER of 0.06%.  However, if you are set on staying with Canadian products, Vanguard has a few options, some hedged, some not (preferred).  First there is the MSCI U.S Broad Market Index ETF (CAD-hedged) (VUS) with 3,237 holdings and a MER of 0.15%.  Next is the S&P500 Index ETF (VFV) and hedged version (VSP), both have a MER of 0.15%.

International/Emerging Markets Index

As mentioned above, I like VXUS as an all in one solution low cost solution for international exposure, but here are the CAD versions.  Vanguard Canada offers FTSE Emerging Markets (VEE) for 0.49%, and the MSCI EAFE Index ETF (CAD-hedged) (VEF) for 0.37%.  Still a bit pricey in my opinion.

Canadian Bond Index

iShares XBB may be the most popular Canadian bond index ETF which has a MER of 0.30%.  Vanguard’s Canadian Aggregate Bond Index ETF (VAB) undercuts them bit by charging a MER of 0.20%.

Short Term Bond

There are quite a few options for short term bonds for Canadians, some popular ones include the iShares XSB (MER 0.25%), CLF (government) (MER 0.15%) and CBO (corporate) (MER 0.25%).  Vanguards Canadian Short-Term Bond Index ETF (VSB) charges 0.15%.  The Vanguard short term corporate bond index ETF (VSC) charges 0.15% as well.

Dividend

I included this one in my Canadian Dividend ETF article and explained that this product is highly competitive.  I won’t get into too much detail here, but the Canadian Dividend ETF competitors are basically CDZ, XDV, ZDV and Vanguards VDY.  The MERs can be quite high for this genre, but Vanguard’s comes in at the lowest with a MER of 0.30%.

REIT Index

Last, but not least, Vanguards FTSE Capped REIT Index ETF (VRE) has 19 holdings with a MER of 0.35%.  Who are the competitors?  iShares XRE and BMO ZRE both with a relatively high MER of 0.55%.  With so few holdings in these ETFs, you may be better off holding the largest players in the space directly.

Final Thoughts

As you can see from the list above, Vanguard offers some very competitive products.  Which ones are my favorite?  As I mentioned before, I like their VTI and VXUS for US and international exposure.  I like their Canadian Index ETF (VCE), their Canadian dividend ETF (VDY), and their short term bonds (VSB and VSC).

Do you have Vanguard ETF products for your portfolio?

 

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

40 Comments
Newest
Oldest
Inline Feedbacks
View all comments
SST
8 years ago

The Scorpio Partnership reports cost-to-income ratio of the global money management industry has risen 16% over the last 4 years.

Average annual increase in management fees of 3.8%.

What was the increase in low-cost ETFs?

Tweev
8 years ago

The thing is that I actually think having a financial advisor is potentially great. Unfortunately, they charge far in excess of what they bring to the table and almost all of the benefit they provide is washed away by their fees.

To be honest, I was quite shocked to see the Canadian Couch Potato offer the investor service: http://canadiancouchpotato.com/diy-investor-service/ but it wasn’t because I don’t think it would be useful but simply the price.

Setting up a couch potato portfolio (even a complex one) would take someone less then a day to sort through and give advice on. For this, they are charging $3000! It’s incredible and absolutely unreasonable. For this, I can see $500 MAXIMUM.

These financial products these people are selling are generally really simple and are not worth the cost that Canadians are charged (see the G&M for numerous articles on how Canadian are being hosed by the financial industry.

TL;DR: Financial advisors would be great if they were only reasonably priced.

SST
8 years ago

I think input from FAIR Canada is apt for this thread:

http://faircanada.ca/top-news/value-of-advice-claims-completely-refutable/

Mike
8 years ago

To go back to your original analogy Scott…

Sure some people would rather not change their own oil…but that isn’t really a fair comparison.

What you are really more akin to is a greasy mechanic. The person that doesn’t know much about vehicles shows up to your door and instead of telling them to go to Canadian Tire to buy a replacement fuse, you bring them in for the complete overhaul and charge them a fortune for it.

Mike
8 years ago

Sorry Chris…that was directed at Scott…

Chris
8 years ago

@Mike

Is this really directed at me? If so, did you even read what I wrote?

I am not a financial advisor. I do not have a financial advisor. I am an R&D engineer with a PhD who happens to take an interest in finances and investing. Unproductive scab? I think not.

I don’t defend the advisors who engage in the behaviours you describe. My only point was that we shouldn’t say all advisors are bad even though a lot of them are, nor should we say that no one should use an advisor because some people need them.

Mike
8 years ago

Hi Chris,

Just two quick questions for you. Do you think you will have better long term returns after fees than something simple like this:

VUS.TO=25%
VCE.TO=15%
VEF.TO=30%
VEE.TO=30%

“Whenever you save a bit more money, put more money into one of the above in order to bring you back to your target allocation above.” Questrade offers free ETF purchases meaning the distributions can also be dripped in a manner to keep the allocation.

The answer is absolutely not.

Question #2

When a young client without any complicated life scenarios happening comes to see you, do you tell him to open a questrade account and simply follow the simple and easy strategy above?

The answer is absolutely not.

That is why you can try to back up your position anyway you like, but you are ultimately an unproductive scab on society that spends more of your time trying to trick people into thinking you are a necessity versus actually doing something useful for society.

Chris
8 years ago

This has turned into a pretty interesting discussion! I think I come down somewhere in between these two guys. Yes, I think a four page pamphlet could explain how to put together a basic portfolio. But you couldn’t also include stuff like saving, insurance, tax planning, etc. You would need more than a four page pamphlet for that. A good book, for example The Wealthy Barber, is enough to get one started on a DIY path (although after re-reading Wealthy Barber recently, there are a few things out of date, so I’d also recommend Wealthy Barber Returns to see what advice Chilton himself would now change). You’d be amazed though how many people could never bring themselves to read a short book on financial planning. It’s sad really, but it’s the truth. For these people, they probably are better off talking to an advisor rather than trying to do things themselves without the required research and screwing things up.

That being said, if you do go to an advisor, you need to make sure they are looking after your interests not their own (i.e. their commission). I know many people that use advisors and some of the advice they have received is clearly in the interest of selling a product that will make the advisor more money. For example, one friend was told by an advisor to never buy an ETF because there is no one there to watch the money and basically implied it could crash at any moment as a result. This is completely untrue and I am sure was said only because the advisor wanted to sell more product. They have every right to try to sell their product, but it must be done truthfully.

Tweev
8 years ago

@Scott

1) I agree that simply because a study is based on correlation that doesn’t necessarily exclude a causal mechanism, however, to be convincing supporting evidence needs to be included and I found it lacking.

2) Feel free to print that out for your colleagues but I would suggest you simply email that to them. I see no reason to use paper for something so well accepted (but obviously not fully understood).

3a) You are correct, I didn’t do an exhaustive review of both studies. I glanced at the ‘economic models’ one and I found some of their stats a bit puzzling. They seemed to want to log everything (which is sometimes not a terrible idea to account for variance issues) but also they seemed to be ignoring the important serial autocorrelation of financial time series data. Anyway, honestly, I didn’t go through that study carefully so I would have to do that to give a full critique.

3b)I did, however look at the second one the Gamma one. Seems reasonable enough and is consistent with what I said before. Of interest is the statement at the end: “. This additional income is equivalent to an average annual return increase of +1.82%”. This is a percentage that is approximately what the fees would be from this active management (maybe actually lower indicating that passive in more expensive).

4) As for your example of internet advice. Yes, I agree with a simple caveat. Everyone knows that when using internet advice caveat emptor but most people don’t think this way when using a financial advisor. For every example of someone taking bad internet advice I can point to one example of getting bad advice for a paid for financial advisor (the sheer existence of back load funds supports this). The difference is people expect crap advice from the internet and are duly suspicious while when using a financial advisor they expect someone to watch out for their financial best interest. Unfortunately this does not happen as often as it should.

5) I think the evidence supports that a financial advisor is better for people with zero interest or inclination in financial matters, however 90% of the people out there would do far better by simply following a 4 page pamphlet of rules to follow.

Scott
8 years ago

@Tweev

You know simply reciting the phrase “correlation does not equal causation” does not rule out every study, right? I know you didn’t read either study, you have a belief and don’t want to be exposed to anything that challenges that belief.

As for the last part of your comment, do you mind if I print that out and show it to my colleagues? I’m sure they’d get a kick finding out the entirety of our CFP studies can be reduced to a “4 page pamphlet”. If you truly believe that comprehensive financial planning can be reduced to a 4 page pamphlet why do you bother continuing to visit these types of sites, surely you have learned everything that could go into that 4 page pamphlet by now.

The expression “a little knowledge is a dangerous thing” comes to mind. I’m reminded of a colleague who a couple years back had a client who had long ago purchased a whole life policy for their child (now whether or not that was the right thing to do at the time is up for debate but it’s something they had done before working with my colleague). The child was now in his mid 20s and read an article that could be summarized “permanent insurance bad, buy term only”. So the kid calls up the insurance company, cancels the insurance and gets a cheque for the cash value. He then does some term price shopping on the ‘net, finds the lowest price and applies, turned out the kid had an early stage of cancer and was deemed uninsurable. Guess what the article forgot to mention, that he should have applied for the term coverage first before cancelling his existing policy (is that in your 4 page pamphlet?). A year or so later he passes away and leaves his wife and young child with nothing. Score one for “free” internet advice, all it cost him (well, technically his wife) was the few hundred thousand that the whole life policy would have paid. If the kid had worked with my colleague and wasn’t given the “apply for term first” advice, my colleague would have been on the hook and would have had to make good, but free advice doesn’t have that same duty of care.

See, those of us working in the industry have stories too, for every bad advisor story you guys come up with, I know one where free internet advice has screwed a person. Am I saying everyone needs to pay for advice, absolutely not, there are people out there that really put the time into DIY but where it can get dangerous is when someone gets a little information and acts on it without fully understanding the consequences (as in my example) so when you are talking to family/friends don’t just give them the headline, make sure they understand the story.