Unpacking ETF Fees, Part 2: Claymore

As discussed in Monday’s post, the Claymore website does not report the entire management expense ratios (MERs) of their exchange-traded funds. Instead, they report the ETF’s management fee, which does not include GST and some other expenses that are passed along to investors. Today’s post will dig deeper into the costs of Claymore’s funds.

Twice a year, all mutual funds and ETFs are required to file a Management Report of Fund Performance, which discloses the returns, activities and expenses of the past six or 12 months. To learn the full management expense ratio of Claymore ETFs, you need to track down these documents. They are available from SEDAR, a website where fund companies post electronic versions of their regulatory filings. Follow this link, type “Claymore” in the search box, then choose “Management Report of Fund Performance” from the pull-down menu.

The most recent reports available are for the period ending June 30, 2009. Here are the MERs for some popular Claymore ETFs, compared with the management fee reported on their website:

Mgt Fee MER Difference
Canadian Fundamental Index CRQ 0.65 0.60 -0.05
S&P/TSX Canadian Dividend CDZ 0.60 0.64 0.04
US Fundamental CLU 0.65 0.62 -0.03
International Fundamental Index CIE 0.65 0.62 -0.03
Japan Fundamental Index CJP 0.65 0.68 0.03
Global Monthly Advantaged Dividend CYH 0.65 0.64 -0.01
Global Real Estate CGR 0.65 0.72 0.07
BRIC CBQ 0.60 0.66 0.06
1-5 Year Laddered Government Bond CLF 0.15 0.17 0.02
1-5 Year Laddered Corporate Bond CBO 0.25 0.28 0.03
S&P/TSX CDN Preferred Share CPD 0.45 0.48 0.03
Balanced Income CorePortfolio CBD 0.25 0.70 0.45
Balanced Growth CorePortfolio CBN 0.25 0.82 0.57

Note that most of the MERs are just two to four basis points higher than the management fee, which can be chalked up to GST and the small fee paid to the fund’s independent review committee (IRC). But a couple are six or seven basis points higher, which is not insignificant when comparing them with other similar ETFs.

It’s also important to note that the costs of currency hedging (which is used in the US and Japanese equity ETFs) are not included in the MER, nor are they itemized in the Management Report of Fund Performance. But they will be an additional drag on the fund’s overall return.

You’ll notice that four of the MERs are lower than the management fee, which is hard to explain. I’m still awaiting a response from Claymore, but my guess is that this is an anomaly that might crop up in an interim report (one filed in the middle of the year), but will disappear in the year-end reports, which are due out at the end of March.

The only truly glaring differences are found in the Income and Growth CorePortfolios. These are ETF “wraps” that hold several other ETFs and function as complete portfolios. Claymore selects the ETFs based on index they’ve licensed, bundles them together, rebalances them quarterly and charges a modest 0.25% for the service. However, that management fee does not include the costs of the underlying ETFs: once you include these, the total cost triples.

The CorePortfolios are still good value—certainly better than most balanced mutual funds, which charge two or three times more—but their full cost is not as clear as it should be. These funds are a direct competitor of iShares’ Conservative and Growth Core Portfolio Builder ETFs, which have an MER of 0.60%. An investor looking only at the two companies’ websites would mistakenly conclude that Claymore funds are much cheaper; in fact, they’re significantly more costly.

Of course, when choosing an ETF, price is not the only consideration. (For what’s it’s worth, I think the Claymore CorePortfolios are a better choice than the iShares wraps, despite the slightly higher MER.) But fees are always important, and it’s worth taking time to find the true cost of an ETF before adding it to your portfolio. Or at least check back here every six months: I will continually update the MERs of Claymore funds on my Canadian ETFs page.

Part 1: Unpacking ETF Fees

Part 3: BMO

Part 4: iShares

6 Responses to Unpacking ETF Fees, Part 2: Claymore

  1. DM February 23, 2010 at 9:42 am #

    Very interesting post. I didn’t realize the discrepancy b/t the way Claymore and iShares reported their fees. I own CDZ and CPD. I’m not too worried about the extra few basis points for the latter, but the CDZ, the MER at 0.64% is now a full 14 basis points higher than the 0.5% charged by XDV, the ishares competitor. Not sure the extra diversification that comes with CDZ is worth this…especially given the upcoming income trust conversion issue (CDZ holds several income trusts and REITs).

  2. Canadian Couch Potato February 23, 2010 at 11:55 am #

    DM: Note that REITs will not be affected by the income trust conversions that need to happen before 2011.

    As for XDV versus CDZ, it’s important to look at the big picture. The yield on CDZ is much higher. The other nice feature of CDZ is that you can sign up for Claymore’s dividend reinvestment plan, which is all the more valuable with a ETF that pays distributions monthly.

  3. Pacific February 23, 2010 at 7:58 pm #

    Good work! Very informative, thank you.

  4. Cliff March 9, 2010 at 9:56 am #

    Great info. Thanks so much.

  5. Melissa June 26, 2010 at 1:00 pm #

    Hi Dan, I have used the info in your posts as a resource so many times and here I am again …. looking for and finding very valuable info.

    Being a newbie I am still navigating my way around the fees and had made the incorrect assumption that the management fee for CBN was equal to the MER. Thank you for outlining the difference.

    Also, since I do use your archives quite a bit I wanted to let you know that I find they are well organized and the keyword search has worked well for me.

    Melissa

  6. Alain Guillot April 3, 2016 at 7:32 am #

    Great post.

    Maybe you could put an update stating the Claymore have been sold.

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