ETFs

Reader Question: How to Buy Vanguard ETFs?

August 13, 2007

20 comments

The following question is from Andre:

In your blog, you mentioned buying VEA ETF. I thought Canadians could not buy Vanguard funds. How do you buy Vanguard ETFs?

It is true that Canadians cannot normally buy the low-cost index mutual funds available directly through Vanguard. Fortunately for us, we can easily buy Vanguard ETFs such as their Total US Stock Market Index Fund (VTI), Europe Pacific Index Fund (VEA) and Emerging Markets Stock Index Fund (VWO), which are even cheaper than the corresponding index mutual funds.

ETFs or Exchange Traded Funds are securities that track an index and are traded on the stock exchange just like individual stocks. If you have a brokerage account, buying an ETF is as simple as entering a buy order with the ETF’s ticker symbol on the appropriate exchange and placing an order.

As you have pay a commission every time you buy or sell an ETF and it is best to keep commissions to 1% of the trade, ETFs are ideal for larger portfolios. For small portfolios and investing small amounts of money regularly, the TD e-Series index mutual funds will be a better choice.

If you have a financial question that you would like answered, feel free to contact me here.

A Tour of ETFs: iShares CDN REIT Sector Index Fund

July 11, 2007

19 comments

A Real Estate Investment Trust or REIT is an asset class that allows you to get exposure to real estate in your portfolio. Real estate is an interesting asset class because historically it has offered a higher return than bonds (but less than equities) albeit at a higher risk (again less risk than equities). Also, real estate has low correlation with other asset classes and adding it to your portfolio will reduce overall volatility. An allocation of 5%-10% to REITs seems reasonable but some recommend going as high as 20%.

The iShares CDN REIT Index Fund (TSX: XRE) is composed of REITs that are listed on the TSX. The MER on the fund at 0.55% is on the high side and might be acceptable for smaller investments. However, if you have a large portfolio you may want to invest in the underlying REITs directly because the two largest REITs – RioCan (REI.UN) and H&R (HR.UN) – make up 36% of the fund.

PS: I noticed that Million Dollar Journey has published a primer on REITs, which you may want to check out as well.

A Tour of ETFs: Vanguard Europe Pacific ETF

May 29, 2007

22 comments

MarketWatch.com is reporting that Vanguard has filed a registration statement with the SEC for a new ETF that will seek to track the MSCI EAFE Index. Pending approval the ETF will be available in the third quarter of 2007.

Unlike the flood of ETFs that are being introduced all the time, the new ETF will be of interest to long-term investors as it competes with the more popular iShares MSCI EAFE Index fund on price. The MER for the new fund is expected to be 0.15% or about 20 bps lower than the iShares fund.

The new fund will allow Canadian investors to build their entire foreign equity exposure using Vanguard ETFs: VTI (entire US market with a MER of 0.07%), the Europe Pacific ETF (international developed markets with a MER of 0.15%) and VWO (emerging markets for a MER of 0.30%).

Update: The ticker symbol for the Vanguard Europe Pacific ETF is VEA.