Reader Alex left a comment about ETFs trading in Canada and the US that track the same index. There are two iUnits trading on the TSX that track the same indices as their American counterparts: iUnits S&P 500 RSP Index Fund (TSX: XSP) (compared to iShares S&P 500 Index Fund (IVV)) and iUnits MSCI International Equity RSP Index Fund (TSX: XIN) (compared to iShares MSCI EAFE Index Fund (EFA)).
Though these funds track the same indices, in their current form, they have significant differences. Both the XSP and XIN are eligible for 100% Canadian content inside retirement accounts. They achieve this by investing most of the funds in the money market and buying derivatives to track the underlying index. XSP and XIN have higher fees at 0.30% and 0.35% (compared to IVV and EFA, which charge 0.09% and 0.35%) respectively. It should be noted that XSP and XIN are not suitable in taxable accounts.
The federal budget for 2005, has proposed elimination of foreign property rules in retirement accounts. Barclays Canada has announced that when the budget finally becomes law, the XSP and XIN will track the respective iShares and be hedged to Canadian dollars. The MER will then change to 0.24% for XSP and 0.50% for XIN.
- In the near future, XSP and XIN will be suitable for investors who want to eliminate the currency risk in holding foreign index funds.
- IVV and EFA are a cheaper alternative (by 0.15%) for investors not worried about currency fluctuations.