Qtrade Now Offering Commission-Free ETFs

The discount brokerage price war is officially on. After Scotia iTrade became the first online brokerage to offer commission-free ETF trades last month, Qtrade Investor has followed suit. The Vancouver-based independent has just launched its own zero-commission ETF program, with an even bigger list of choices.

Qtrade’s menu includes 40 Canadian ETFs from Claymore, iShares and Horizons, and even a couple from the new PowerShares lineup. More interestingly, the choices also include 20 US-listed ETFs from Vanguard, iShares and State Street.

Before long-term Couch Potato investors get too excited, however, the list of eligible ETFs does have several gaps. There are few broad-market funds: most have narrow mandates. The most popular broad-market Canadian and US equity ETFs are not there—not even Claymore’s CRQ or CLU, which are included in the Scotia iTrade program—and all of the US-listed ETFs are sector-specific funds. Sorry, no core Vanguard ETFs.

Covering the broad market

The Horizons S&P/TSX 60 (HXT) and Horizons S&P 500 (HXS) are both part of the Qtrade program, and would be fine for covering the large-cap Canadian and US markets, as long as you’re comfortable with the swap structure. You could even combine HXT with the iShares S&P/TSX Completion Index Fund (XMD), which holds mid- and small-cap stocks, to get complete coverage of the Canadian market.

For broad coverage of international equities, there’s the Claymore International Fundamental (CIE) and iShares MSCI Emerging Markets (XEM). I like that both of these ETFs do not hedge currency, but they are very expensive by ETF standards: 0.73% and 0.79%. Unless you’re making a lot of purchases, you’re likely better off paying the $10 commission for a Vanguard  ETF.

On the fixed income side, the Qtrade lineup includes Claymore’s excellent short-term bond funds, CLF (government bonds) and CBO (corporate bonds), as well as the iShares DEX Real Return Bond (XRB). The broad-market Claymore Advantaged Canadian Bond ETF (CAB) is also eligible, and it would be fine for a non-registered account: Claymore’s Advantaged family of ETFs uses a complicated structure that is more tax-efficient. But it offers no advantage to RRSP investors. A mix of CLF, CBO and XRB would likely be a better choice for the bond allocation in a registered account.

Qtrade is now the only discount brokerage in Canada to offer both no-commission ETFs and the ability to hold US dollars in an RRSP (although there is a $50 fee for this service). Throw in a reputation for excellent customer service and Qtrade’s offering is pretty compelling.

Any guesses about which brokerage will be the next to offer commission-free ETFs?

25 Responses to Qtrade Now Offering Commission-Free ETFs

  1. Superior John October 19, 2011 at 9:04 am #

    The ability to hold US dollars in a RRSP. What are the odds this trend will be followed by others?

  2. Canadian Couch Potato October 19, 2011 at 9:10 am #

    @Superior John: As you may know, there are now four brokerages that allow you to hold USD in an RRSP: Qtrade, Questrade, RBC Direct Investing and BMO InvestorLine. My guess is TD Waterhouse will be the next, though that’s just a guess. I have to think that all of them will offer this service at some point.

  3. Canadian Capitalist October 19, 2011 at 9:19 am #

    Interesting! I was betting that BMO will be next in offering commission-free ETFs but QTrade beat them to it. It will be a win-win for BMO when it does.

  4. Robert Smith October 19, 2011 at 10:07 am #

    Now if we could stop Qtrade from charging excessive “Routing Fees” for each transaction, it would be the perfect brokerage.

  5. Paul G October 19, 2011 at 10:15 am #

    Not entirely on topic, but could you explain the difference between XMD and XCS ? I’ve considered taking HXT in a non-registered account and XCS or XMD in a registered account, but haven’t been able to figure out the difference between the two from the ishares website (or at least, haven’t been able to figure out the difference between the index each follows, which amounts to the same thing).

  6. Canadian Couch Potato October 19, 2011 at 10:48 am #

    @Robert: Can you explain a bit more about these routing fees?

    @Paul G: The S&P/TSX Composite currently has 260 stocks, all of which are included in XIC. The largest 60 of these are the ones in XIU (as well as HXT), and the other 200 are in XMD. So holding both XIU/HXT and XMD would be equivalent to holding XIC. The proportion would be about 75% XIU/HXT and 25% XMD to match the weighting of XIC.

    While XMD holds both mid-cap and small-cap stocks, XCS holds exclusively small-caps (less than $1.5 billion in market cap), many of which are too small to be included in the S&P/TSX Composite.

  7. Paul G October 19, 2011 at 11:53 am #

    So really, there’s no way for someone to cover small-cap, mid-cap and large-cap in Canada without some overlap, given that the small-cap and mid-cap indexes overlap. That’s what confused me – XCS and XMD share some constituents, but don’t track the same index; the problem is the way these indexes are defined.

    Thanks for the explanation! (though I still don’t know what I’ll wind up doing)

  8. Canadian Couch Potato October 19, 2011 at 12:10 pm #

    @Paul G: You’re right, there will be some overlap if you use both XMD and XCS. Personally, I would use one or the other in combination with XIU/HXT, not both. Your decision would be based on how much of a small-cap tilt you want.

    You may find this article interesting:
    https://www.pwlcapital.com/Advisor/Toronto/Kathleen-Clough/Justin-s-Blog/Blog—Justin-Bender/July-2011/ETF-Investing-for-Beginners–Canadian-Equity

  9. John T October 19, 2011 at 12:32 pm #

    This is a great site. I find the articles very interesting, topical and useful. I find the comments and follow up answers from “Canadian Couch Potato” very good.
    On the ETF topic though — I am a little confused. The previous article on this website talked about how ETF’s will be the death of the free market, doom, gloom etc. I was unclear on the difference between a “true index” and an ETF. I have a significant holding in XTR because of the simple monthly distributions which equate to a 6% annual yield. What’s everyone’s opinion on index vs ETF and XTR ? Should I be scared after the article presented on your website?

  10. Canadian Couch Potato October 19, 2011 at 12:44 pm #

    @John T: Thanks for the comment. I hope it was clear from my last post that I was being ironic when I referred to Couch Potato investing as a financial time bomb. XTR, and indeed pretty much all products from iShares, is in the “plain vanilla” category. XTR does not track an index, but it is a very simple product that holds several other iShares ETFs. No need to be scared!

    I’m working on more detailed posts about potential ETF dangers: coming soon.

  11. Robert Smith October 19, 2011 at 1:59 pm #

    The Qtrade “Routing Fees” are buried deep in the fine print. From the Qtrade website it reads:

    “The transaction pricing above and below does not include any market, routing, ECN and SEC fees (SEC fees are only applied to sell transactions of US securities) that may be charged. For Canadian equity trades, exchange fees of up to $0.004 per share or 1/30th of 1%, whichever is higher, may be charged. ”

    According to the Qtrade reps I spoke with, these are “Routing Fees”. The extra cost far outweighs the commission.

    My recommendation is that people look elsewhere for a brokerage. The fees for each trade are outrageous.

  12. jason October 19, 2011 at 7:51 pm #

    I really hope TD hopes on the no commission fees bandwagon and includes BMO ETF’s. That would be ideal for me.

  13. The Paperboy October 19, 2011 at 9:03 pm #

    With more and more brokers offering commission free ETFs, is this one step closer to mutual funds being obsolete? One of the main perks of using mutual funds was the ability to buy more shares free of charge, but now that you can do that with ETFs… what’s really left as an incentive for people to hold mutual funds?

  14. The Wealthy Canadian October 19, 2011 at 10:14 pm #

    If I had to guess, I’d go with BMO InvestorLine.

    Other than Claymore’s fixed income offerings, I’m disappointed with Qtrade’s list. I wonder if we’ll see upcoming brokerages offer some of Vanguard’s products. It could give an edge. Would love to see VTI or VEA make the list.

    Looking forward to your future posts on ETF dangers. I read an article on BNN this week about ETF providers lending gains…kind of freaky.

    Excellent post Dan.
    TWC

  15. My Own Advisor October 20, 2011 at 11:17 am #

    Great post and news Dan!

    This war/competition is only going to make the options better for investors over time.

    Surely, TD Waterhouse is next to do this?

    What is your guess Dan?

    Like TWC, I would love to see VTI, VEA or VWO (Vanguard products) become part of this mix. It would be great for my lazy RRSP portfolio compromised mostly of ETFs, certainly for re-balancing purposes.

  16. Canadian Couch Potato October 20, 2011 at 11:42 am #

    @Robert: I followed up with Qtrade and they have clarified that no routing fees apply to any of the zero-commission ETFs. The total cost is $0 for these transactions.

    @MyOwnAdvisor: It’s not an accident that most core ETFs from iShares (including XIU, XIC, XSP, XIN, XBB) and Vanguard (VTI, VEA, VWO) are not included in these initial offerings. Let’s remember that brokerages need to make money. They can’t offer zero account fees and zero commissions on all ETFs. We’re off to a good start here.

  17. Russ October 20, 2011 at 6:26 pm #

    TD Ameritrade offers a list of 100 commission-free ETFs to its account holders and yet it seems to be a profitable company. Among those offered under this program are broad-based index Couch Potato building blocks, such as Vanguard’s VTI, VEA, and VWO. It would sure be nice for TD Waterhouse to follow its US affiliate….

  18. BadCaleb October 20, 2011 at 6:55 pm #

    I agree wtih CCP, this is a good start even if some of the ones I’d be interested in are not included. I am not surprised there are no Vanguard ETFs. The only place I know of offering these are for Vanguard brokerage clients. Now if only Qtrade will drop the annual fee for a US$ RRSP.

  19. BadCaleb October 20, 2011 at 6:57 pm #

    D’oh! Didn’t see the US listed tab.

  20. Robert Smith October 23, 2011 at 12:13 pm #

    Thanks for the information about the routing fees.

    This is good news however I have to say that I never would have set up my account with Qtrade if I had known of the excessive fees that are charged on top of the commission.

  21. Idiot Stock Investor January 7, 2012 at 11:37 am #

    This works great for me and will encourage me to get into HUC for the crude, HUZ for silver and HUG for gold and makes short profits easier. Just remember that they’ll charge commission if you don’t hold these ETFs for a day. One question I didn’t see anyone asking is how and why is this being done?

    I can only speculate the ETFs are working closely with the trading firms and compensating them well to essentially promote their ETFs.

  22. Walter September 5, 2012 at 1:29 am #

    I would just like to add an update.

    Qtrade charged their terms without warning the clients. The minimum value for a commisiion free trade is now $1000. A few months ago I could purchase one ETF share at a time, but got stung within a 24hr period when they changed their policy, I was hit with a $19 commission on a $100 trade. My fault as I was on autopilot hitting confirm but they should have notified the clients,

  23. Hanns February 4, 2014 at 6:29 am #

    Using Qtrades commission free ETFs could you suggest a couch potato portfolio like your standard using theses guidelines.

    Canadian equity 20%
    US equity 20%
    International equity 20%
    Canadian bonds 40%

  24. Canadian Couch Potato February 4, 2014 at 7:26 am #

    @Hanns: The menu of commission-free ETFs at Qtrade is very limited and there s no way to properly replicate the Global Couch Potato using the available funds. I love the idea of commission-free ETFs, but this should not be the driver of decisions. If the portfolio is too small to make $10 trades reasonable, then index mutual funds may be more appropriate.

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