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To Vanguard Canada: Please sir, we want some more (non-hedged US and International ETFs)

Dan Bortolotti (a.k.a. The Canadian Couch Potato) recently wrote a post on the possibility of a Canadian investor paying US estate taxes if they hold US-listed exchange-traded funds (ETFs). He suggests that a prudent approach for someone vulnerable to this situation could be to stick to Canadian-listed ETFs for their foreign equity exposure.
The main issue with this strategy is that there are currently not many choices for investors looking for non-hedged U.S. or International equity exposure (the only ones that come to mind are listed below – with hefty MERs):

I am hopeful that Vanguard’s next Canadian product launch will include versions of the following US-listed ETFs (non-hedged):

It may seem a bit odd that I would want them to release anything other than a Canadian non-hedged version of VTI and VXUS, but there are a number of reasons taxable investors should prefer to have more than one low-cost choice for both their U.S. and International ETF selections:

  1. Having two very similar but not identical ETFs makes capital loss selling a breeze.
  2. If you currently hold an ETF that has a large capital gain, it may make sense to direct any new contributions to a different ETF that is more or less the same – that way, if/when markets go down, you’ll be able to harvest some of the newer losses (instead of simply being stuck with lower gains in the original ETF). 

It is anyone’s best guess what products Vanguard will come out with next – certainly their recent arrival to Canada should be viewed as a positive development for all investors.


By: Justin Bender | 0 comments

U.S. ETF and Mutual Fund Comparison - 2011-10-31

For investors looking for exposure to U.S. stocks, I’ve put together a report similar to the “Canadian ETF and Mutual Fund Comparison” that was posted last week:

As with the Canadian version, I will try to update the information on a quarterly basis, depending on investor interest.

Best regards,

By: Justin Bender | 0 comments

Canadian ETF and Mutual Fund Comparison: October 31, 2011

With the ever-growing plethora of broad-based and dividend focussed Canadian ETFs entering the marketplace, I’ve decided to put together a report that illustrates some of the main differences in order to help investors navigate between these ETFs, mainly:

  • Management Expense Ratio (%):  Lower fees = more money in your pocket at the end of the day
  • Portfolio Turnover (%):  Less turnover = less trading costs and possibly less realized capital gains
  • Gross Dividend Yield (%):  For the income-starved investor
  • Number of Holdings:  More holdings = less single security risk
  • Equity Sector Allocation (%):  It’s difficult to diversify away from the energy, financials, and materials sectors in the Canadian equity markets (these three sectors currently make up approximately 78% of the S&P/TSX Capped Composite Index), but beware of any ETF that is overweight in any of these sectors relative to the market
  • Equity Size and Style Allocation (%):  “Small” companies have higher risk but higher expected returns than “large” companies, while “value” companies may have higher risk but have higher expected returns than “growth” companies

Some of the data is incomplete, but I will update it as it becomes available (note that I’ve also included Dimensional Fund Advisors/DFA mutual funds, as we use these low-cost securities with our PWL clients to gain exposure to the small and value premiums).

If any investors find this analysis useful, I will certainly consider regularly updating it, as well as comparing various U.S. and International ETFs in the future.

By: Justin Bender | 1 comments