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Vanguard Lowers Their Fees...Again

October 9, 2014 - 3 comments

The race to the bottom continues as Vanguard Canada recently lowered the fees on 11 of their ETFs. The cost that investors will pay to construct a balanced portfolio of Vanguard ETFs is now just 0.13% (the same cost as a similar portfolio from iShares, and slightly cheaper than one from BMO).

iShares and BMO have also taken action to improve the tax-efficiency of their international equity ETFs by holding the underlying securities directly, while Vanguard continues to use a less tax-efficient “wrap” structure (choosing to hold US-domiciled ETFs instead). This structure leads to an additional layer of non-recoverable foreign withholding tax (for more information, please refer to our white paper, Foreign Withholding Taxes).

In the chart below, I’ve constructed balanced portfolios from the three companies and estimated their total costs (including foreign withholding taxes). The costs have been calculated separately for RRSP/TFSA accounts and taxable accounts.The results indicate that the iShares portfolio is still slightly cheaper in both cases by about 0.04%, although I would call this a draw.  Canadian investors will be paying low costs no matter which plain-vanilla ETF they choose.

By: Justin Bender with 3 comments.
Comments
  16/02/2015 6:45:45 AM
Melissa
That white paper was exactly what I needed. The best thing I've ever read on foreign withholding taxes--not that I've read a lot, but none of them explained it with such clarity and specific examples. Thank you.
 
  06/11/2014 10:26:10 AM
Justin Bender
@Narr - thank you for the suggestion - I'll look at putting something together in the future. In the meantime, please feel free to refer to our Foreign Withholding Tax white paper (which estimates the cost for US-listed ETFs): https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/Justin%20Bender%20Assets/PWL_Bender-Bortolotti_Foreign-Withholding-Taxes_v04_hyperlinked.pdf?ext=.pdf
 
  05/11/2014 4:20:28 PM
Narr
Can you add the underlying US ETF and approximate taxes? Thanks!
 



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