Reader Alex left a comment about ETFs trading in Canada and the US that track the same index. There are two iUnits trading on the TSX that track the same indices as their American counterparts: iUnits S&P 500 RSP Index Fund (TSX: XSP) (compared to iShares S&P 500 Index Fund (IVV)) and iUnits MSCI International Equity RSP Index Fund (TSX: XIN) (compared to iShares MSCI EAFE Index Fund (EFA)).
Though these funds track the same indices, in their current form, they have significant differences. Both the XSP and XIN are eligible for 100% Canadian content inside retirement accounts. They achieve this by investing most of the funds in the money market and buying derivatives to track the underlying index. XSP and XIN have higher fees at 0.30% and 0.35% (compared to IVV and EFA, which charge 0.09% and 0.35%) respectively. It should be noted that XSP and XIN are not suitable in taxable accounts.
The federal budget for 2005, has proposed elimination of foreign property rules in retirement accounts. Barclays Canada has announced that when the budget finally becomes law, the XSP and XIN will track the respective iShares and be hedged to Canadian dollars. The MER will then change to 0.24% for XSP and 0.50% for XIN.
To summarize:
- In the near future, XSP and XIN will be suitable for investors who want to eliminate the currency risk in holding foreign index funds.
- IVV and EFA are a cheaper alternative (by 0.15%) for investors not worried about currency fluctuations.
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3 responses so far ↓
1 Arbee // Jun 15, 2005 at 11:14 am
Alex, I thought I’d make a post from your comment
2 US Dollar vs. Canadian Dollar Investments Inside RRSP? at Investing Intelligently // Feb 21, 2007 at 5:56 am
[...] The Canadian Capitalist has mentioned USD currency exposure a lot in the past and in fact just re-iterated his opinion on it today, “I believe that investors with a reasonably long-term view (more than 10 years) should ignore currency fluctuations, as it is impossible to precisely predict currency movements even in the near-term.” In other words, I think what he’s saying is that the currency fluctuations will help you some years and hurt you in others but over the long term your return in CAD will probably be fairly close to the return in USD. A while back he talked about the difference between iShares and iUnits (the Canadian ones, now also called iShares). He later said he would have used the USD versions rather than the CAD versions if he were to start the Sleepy Portfolio all over. [...]
3 Pitfalls of the Sleepy Portfolio // Aug 14, 2007 at 12:02 pm
[...] foreign content in retirement accounts was capped at 30%. If I were launching now, I would replace the XSP and XIN with their US counterparts IVV and EFA, as they are cheaper to own and hedging currency exposure is probably unnecessary over the very [...]
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