Skip to content

ETF Selection Criteria – Cost.


Last time we proposed ETF selection criteria to help the Individual Investor sort through the multitude of ETFs available in order to make simple, sensible choices for their portfolio. Another criterion is …

Cost(s).

Simple usually means least costly. Complexity usually adds fees and/or risk(s). So look for simple.

For reference, the average Institutional Investor pays ~0.40% for ‘all in’ operating costs for their entire portfolio (Source: CEM). The breakdown is about ~0.17% to 0.60% for bonds, ~0.35% – 0.72% for stocks and ~0.60% – 0.97% for real estate and other ‘alternatives’. (Source: bfinance). The majority of Pensions fall into the 0.20% to 0.80% range. (Source: Ambachtsheer). (It looks like the CPP pays ~0.20% for ‘all in’ operating costs).

An Individual Investor should expect to pay ~0.40% for an ETF portfolio. The CORE (i.e. simple) ETFs will be least costly. Eg. XIU is 0.17%. SPY is 0.10%. VV is 0.12%. The more complex the ETFs (‘satellite’ funds or ‘alternatives’) the more cost.

Next time?
ETF selection criteria in practice.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
Advertisements
4 Comments Post a comment
  1. Gee, I guess there is no monopoly on ideas!. (Thanks for the heads up).

    Like

    October 26, 2011
  2. JTN #

    I think I’ve heard this from somewhere before… 😉
    http://business.financialpost.com/2011/10/25/how-to-invest-like-the-canada-pension-plan/

    Like

    October 25, 2011
    • Hi, JTN.
      You commented on my Blog posts 9 times in 2011.
      Thanks.
      Anything in particular you’d like to see addressed in 2012?

      Like

      January 1, 2012

Trackbacks & Pingbacks

  1. How-To Select ETFs. « Institutional Investing for Individual Investors

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: