The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: mgarf on October 12, 2016, 06:43:17 AM
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Hi all,
I currently have my US stock proportion in VUN, however, looking at iShares XUU, it has lower fees (0.10% vs 0.16% MER) with the same amount of holdings (3,736 vs 3,564 stocks)... Does anyone see anything that I'm missing? Vanguard's pull is strong with me and I just want to make extra sure before switching. The stock weights (for the top holdings at least) seem to be almost identical as well.
Sources:
iShares:
https://www.blackrock.com/ca/individual/en/products/272104/ishares-core-sp-us-total-market-index-etf
You need to click on "Aggregate Underlying Holdings" to see the actual number of stocks, as it is a fund of funds.
Vanguard:
https://www.vanguardcanada.ca/individual/mvc/detail/etf/overview?portId=9557
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No except to remember that the iShares is a loss leader for their other products so keep an eye on any future increases to the MER.
Only buying loss leaders is good mustachian behavior
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Since it is a fund of funds you will want to see how they calculate the MER. Does that 0.10% include the MER for the underlying funds or is it just for the top level?
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Since it is a fund of funds you will want to see how they calculate the MER. Does that 0.10% include the MER for the underlying funds or is it just for the top level?
That would be sneaky! But no, they include the underlying MERs in the calculation.
"As reported in the fund's most recent Annual Management Report of Fund Performance. MER includes all management fees and GST/HST paid by the fund for the period, including fees paid indirectly as a result of holdings of other ETFs."
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I was listening to the rational reminder podcast recently. (Episode 129 About Fama French Five Factor Model Portfolios for Canadians) and they'd mentioned at the end of the episode that XUU had developed a significant tracking error in comparison to their underlying index benchmark in 2020. (One year tracking error ending November 2020 XUU returned 14.12% vs it's own benchmark which returned 15.42%).
Episode link: https://rationalreminder.ca/podcast/129
(fast forward to 59th minute)
To me this is a significant permanent lost due to the fund management execution error with no guarantees that they will do something about it in the future. Yes you will pay a bit more in MER fees with Vanguard's VUN, but 7 extra basis points a year vs a tracking error of ~130 once in a while is totally worth it in my opinion.
Furthermore running XUU vs VUN via portfoliovisualizer.com
Shows that VUN exhibit slightly lower volatility with slightly better annual results in each year starting from March 2015. This slightly better return yoy so far has been compensating for a slightly higher management fee :)
I know that past returns do not guarantee future outcomes, but nevertheless it is something to think about.