Even though I am in a wait-and-watch mode when it comes to the Horizon BetaPro S&P/TSX 60 ETF (HXT), I think HBP should be warmly applauded for introducing a new ETF is priced at about half that of its major competitors. For years, we’ve watched Vanguard competing with iShares on price and wondered when we’d see similar competition here. But, as Canadian Couch Potato pointed out, a lower cost alternative to the iShares S&P/TSX ETF (XIU) is likely not the first thing that many investors would wish for. So, what products or features would we like to see? Here is my wish list:
Cheap(er) REIT ETF
The iShares S&P/TSX Capped REIT Index (XRE) has a MER of 0.55% and has more than $1 billion in assets. And when BMO introduced a competing Equal Weight REITs ETF (ZRE), they also priced it at a MER of 0.55%. A new Canadian REIT ETF priced much cheaper than existing products, say in the 0.25% range will likely see lot of interest and enthusiasm from investors.
Currency-Unhedged EAFE ETF
Canadian investors have so much choice when it comes to ETF products that provide currency-hedged, broad-market exposure to developed international markets. However, investors prefering not to hedge their currency exposure have little choice but to access these markets through ETFs such as Vanguard Europe Pacific ETF (VEA) available in the U.S. However, by investing in the U.S., Canadian investors are exposed to U.S. Estate Taxes and currency conversion costs. A currency-unhedged EAFE ETF that holds international stocks directly would appeal to many investors.
Currency-Unhedged US Total Market ETF
It is hard to beat an ETF such as Vanguard Total Market ETF (VTI) on price. But, many wealthy Canadians wanting to avoid U.S. Estate Tax issues might be interested in a currency-unhedged, Canadian-listed U.S. Total Market ETF. Holding a Canadian-listed ETF that in turn invests in U.S. stocks will result in a withholding tax drag of 15 percent but this penalty may be acceptable to many Canadians.
World Ex-Canada Total Market ETF
Canadian investors wanting to diversify their portfolio globally invest in each of U.S., EAFE and Emerging Markets. There might be demand for an ETF product that combines the three different foreign market ETFs into one. The global markets will be weighted according to their share of the world market capitalization excluding Canada. The product will be modeled along the lines of the Vanguard FTSE All-World Ex-US ETF (VEU).
Pre-Authorized Cash Contribution and DRIP
One of the biggest knocks against ETFs is that it costs stock trading commissions to buy them. A small investor at a big bank brokerage is likely paying $30 for each trade and regular small investments in ETFs becomes prohibitively expensive. iShares, BMO and Horizons BetaPro can follow Claymore’s lead and establish a Pre-Authorized Cash Contributions (PACC) and Dividend Reinvestment Plan (DRIP). A PACC and DRIP will allow small investors to invest even small amounts of money at many discount brokers.
What new and unique ETF products and features would you like to see?