Exchange Traded Funds (ETFs)
Like mutual funds and segregated funds, Exchange Traded Funds (ETFs), have an annual management expense ratio (MER) by which you can judge their annual investment costs.
Because ETFs are not actively managed by a portfolio manager and do not have an insurance component, they tend to have substantially lower annual MERs.
Unlike mutual funds and segregated funds, ETFs may not include certain transaction expenses, such as trading commissions and other trading costs, in the calculation of their MER. In addition to the MER, an ETF may also calculate a Trading Expense Ratio or TER which represents total commissions and other portfolio transaction costs calculated as an annualized percentage of the ETF's daily Net Asset Value (NAV) for the period.
When comparing an ETFs annual investment costs with those of a mutual fund or segregated fund, you must first add the ETF's MER and TER together to ensure you are comparing total costs.
For example, TSX-listed iShares ETFs typically have MERs between 0.17% and 0.55% per year and TERs between 0.00% and 0.39% per year, which is substantially lower than the total MERs for a mutual fund or segregated fund.
What is the cost to purchase ETFs?
ETFs trade on the stock exchanges and thus there is a commission cost to purchase and sell the units, just as there are for common and preferred shares. The cost to purchase and sell ETF units will be influenced by the number of units involved, the price paid or received, and the financial institution’s commission schedule.
Discount brokerage firms are the least expensive place to buy and sell shares while full service investment firms are the most expensive. For example, the commission to purchase or sell 1,000 units, at a price of $10.00, can range from $9.95 if purchased through a discount broker, to $250.00 at a full service broker.
In some instances, the value of your account and the trading frequency may also influence the transaction costs. Some discount brokers will offer discounts if your account value exceeds a certain dollar value and if you maintain a certain level of trading activity.
Note: For more detailed information regarding ETFs, see our section Class Room - Investment Type: Exchange Traded Funds.