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