arrow7 Comments
  1. Viscount
    Jun 14 - 7:04 am

    One thing that confuses me: Canadian domiciled funds and ETFs pay U.S. withholding taxes on the underlying holdings, but Canadian domiciled funds that are based on swaps like HXS do not (apparently). Why don’t more Canadian ETFs holding foreign assets switch over to a swap-based model? This seems popular in Europe.

  2. Sampson
    Jun 14 - 9:05 am

    I’m too lazy to look this up myself, but I wonder how fees for other Australian investment products compare to Canadian fees. Is this a case where Vanguard is trying to get away with higher fees simply because comparable products in Canada are more expensive? A little bit of pseudo price-fixing?

  3. Canadian Capitalist
    Jun 14 - 11:22 am

    @Viscount: I haven’t looked at HXS in any depth because the ETF tracks the S&P 500 C$ Hedged Index which has a pretty bad tracking error when compared to the total return of the S&P 500 in US$ terms. A swap-based ETF (without currency hedging) will have some significant advantages in both RRSP and taxable accounts but we don’t have one available right now.

    @Sampson: I should look up a recent report that compared MERs in different countries. Vanguard’s Australian ETFs are sometimes more expensive than their US counterparts. However, this may just be a function of the Australian market being much smaller than the US. If Vanguard has similar pricing on any new Canadian ETFs, they will still be significantly cheaper than the competition.

  4. Canadian Couch Potato
    Jun 14 - 11:46 am

    Thanks for the insight, CC. I agree that if there is pricing pressure from Vanguard it will be focused on the Canadian sector and specialty ETFs that currently charge 55 to 65 bps. It’s hard to know whether a TSX-listed version of VTI or VEA would have much impact, as the currency hedging is really what differentiates Canadian funds like XSP and XIN. Most Canadians seem to love their currency hedging.

    @Viscount: HXS would still be subject to withholding taxes, but like anyone else, they can recover it, so they don’t pass on that cost to investors in the ETF.
    http://canadiancouchpotato.com/2011/06/08/swap-based-etfs-what-are-the-risks/

  5. My Own Advisor
    Jun 14 - 7:57 pm

    For sure, it would be interesting to know and compare what the Vanguard MERs are, in different companies. Maybe Canada will be closer to Australian fees? Similar economies of scale? Then again, maybe they can get away with even higher fees in Canada since some people are willing to pay any price for mutual funds? :)

  6. [...] Capitalist takes a peek at Vanguard’s Australian ETFs to see what kind of products and fees will be offered in [...]

  7. [...] to investors wanting currency unhedged exposure to US and EAFE markets. Personally, I was hoping Vanguard would introduce cheaper alternatives to existing REIT and dividend ETFs. Hopefully, these ETFs will be launched in a second wave. Post a [...]

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