|Vanguard FTSE Canada||VCE||0.09%||0.05%|
|Vanguard FTSE Canada All Cap||VCN||0.12%||0.05%|
|Vanguard FTSE Canadian High Dividend Yield||VDY||0.30%||0.20%|
|Vanguard S&P 500||VFV||0.15%||0.08%|
|Vanguard S&P 500 (CAD-hedged)||VSP||0.15%||0.08%|
|Vanguard FTSE Developed ex North America||VDU||0.28%||0.20%|
|Vanguard FTSE Developed ex North America (CAD-hedged)||VEF||0.28%||0.20%|
|Vanguard FTSE Emerging Markets||VEE||0.33%||0.23%|
|Vanguard Canadian Aggregate Bond||VAB||0.20%||0.12%|
|Vanguard Canadian Short-Term Bond||VSB||0.15%||0.10%|
|Vanguard Canadian Short-Term Corporate Bond||VSC||0.15%||0.10%|
Normally the leader when it comes to low costs, Vanguard actually got scooped by its competitors in Canada this year. iShares slashed fees on several ETFs back in March, and BMO followed up a month later with dramatic cost cuts of its own. In a blog post last spring comparing the core equity ETFs of the three providers I wrote: “Surprisingly, the Vanguard counterparts are now the most expensive in the group. I’m pretty sure no one saw that coming, and I would be surprised if it stayed this way for long.” Well, it took less than six months.
The lower fees suggest Vanguard is now feeling comfortably positioned in the Canadian marketplace. The company is approaching its third anniversary in Canada and its growth has been particularly strong this year. During the 12 months ending September 30, Vanguard’s assets under management grew by 122% and the firm is approaching the $3 billion mark. By comparison, BMO ETFs got to $3 billion a little faster (just under two-and-a-half years), but it had a better-known brand, an army of affiliated advisors, and a lot less competition.
Bonding over low fees
In my view, the most significant fee cut is to the Vanguard bond funds. When iShares launched its Core family of low-fee ETFs they conspicuously left out the $1.6-billion iShares Canadian Universe Bond (XBB) and the even larger iShares Canadian Short Term Bond (XSB): these funds still have bloated MERs of 0.33% and 0.27%. (Instead they rebranded two smaller funds and gave them management fees of 0.12%.) BMO’s fee reductions did not include its flagship bond ETFs either. But Vanguard reduced the cost of its biggest fixed income funds: the Vanguard Canadian Aggregate Bond (VAB) and the Vanguard Canadian Short-Term Bond (VSB), which are now the cheapest (or tied for the cheapest) in their categories at 0.12% and 0.10%, respectively.
Vanguard has also become the cost leader among S&P 500 trackers, undercutting its competitors’ XUS and ZSP by a couple of basis points. Sure, it would have been nice to see the Vanguard U.S. Total Market (VUN) on the list, but this ETF—which holds more than 3,700 stocks—does not have any direct counterparts at iShares or BMO. Even at 0.17%, it’s still my choice for US equities because of the addition of all those mid- and small-cap stocks.
As Justin Bender pointed out in his latest blog, RRSP investors should still pay attention to the structure of foreign equity ETFs: the Vanguard international equity funds still face an additional layer of foreign withholding taxes because they use an underlying US-listed ETF rather than holding the stocks directly. (For more information, see our white paper.) But it’s now possible to build a globally diversified portfolio with a management fee of less than 0.15% at all three of the major ETF providers—about half what you’d have paid just four or five years ago. Looks like the “Vanguard effect” has finally arrived in Canada.
Disclosure: I hold VAB in my portfolio.