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moneysense.ca, 15/10/05
Selling XIN; Buying EFA
I am selling the iUnits MSCI International Equity Index RSP Fund (TSX: XIN) and buying the equivalent iShares fund that track the MSCI EAFE Index. The XIN ETF has a total expense ratio of 0.5% versus 0.35% for the EFA and provides currency hedging for the extra fee. Since, I am investing for the very long term, I’ve decided to forgo the currency-hedging feature and save the small fee differential between the two ETFs.
It probably doesn’t make sense to sell the XIN and buy the EFA with the proceeds, but I am in the process of increasing my international equity exposure to my target levels. It would take a $20,000 investment in the EFA for a full year just to get back the commission involved in selling the XIN. And of course, there are the currency conversion charges on top of it. But, over ten or twenty years, I am hoping that the small savings will add up.
moneysense.ca, 15/10/05
“It would take a $20,000 investment in the EFA for a full year just to get back the commission involved in selling the XIN.”
That doesn’t sound right. Can you explain the math on that one.
Anon: Sure. The EFA is 15 bps cheaper than the XIN. Commission to sell is $29.95. You need almost $20,000 (29.95/.0015) to generate $29.95 in savings with the EFA.
I hope you hedge against $US because I think its value has nowhere to go but down with record debts and deficit they’ve been racking up the past few years.
bcool: Since EFA reflects the value of foreign securities (in Europe and Japan), the currency effect should be neutral as long as C$ stays stable against Euro and Yen.
Can anyone explain why the returns of EFA and XIN are different? As of Dec 23, 2006, EFA has a 5Y return of 15.04% and XIN only 5.83% Is this due to the currency effect of the USD going down and increasing the value of EFA? With chances that the USD still has some weight to shed, is it better to own EFA or XIN?
If you’re getting returns in US dollars for EFA and in Canadian for XIN, you’ll need to calculate and adjust for the drop in U.S. greenback versus the loonie over this five-year period. In other words, yes, difference looks like a currency effect. As for future, I’ve spoken to bank economists who admit that currency predictions are not much better than guesses: nobody can really tell because speculative psychology can outweigh fundamentals for years.