Canada's two largest managers of exchange-traded funds are engaging in nickel and diming that investors can only applaud.
The latest volley in the ETF price war was fired by the second-largest player, BMO Asset Management Inc. It's slashing management fees on seven of its ETFs by anywhere from five to 20 basis points, effective April 30. (See table below.)
Announced on April 21, the fee reductions affect six equity funds and one fixed-income fund. In most cases, they match reduced management fees that
Last month's fee cuts by iShares, and this week's counter-move by the $13.3-billion BMO family, leave the two firms as the co-leaders in low-cost index investing across various core equity categories.
For the time being, they're "out-Vanguarding" their rivals, which include Vanguard Investments Canada Ltd., the Canadian arm of the U.S.-based fund-management giant known as a champion of low-fee index funds.
Meanwhile, other ETF firms in Canada are emphasizing strategic beta strategies or other approaches that seek to outperform traditional market-capitalization-based indexing.
BMO's price cuts will enable investors to build broadly diversified portfolios -- with exposure to Canadian, U.S., Europe Australasia Far East (EAFE) and emerging markets equities -- with management fees ranging from five to 25 basis points.
The cheapest of these is BMO S&P/TSX Capped Composite Index
In the U.S. Equity category, BMO and iShares will be positioned as the co-leaders, each charging an industry-low 0.10% for their ETFs, both currency-hedged and unhedged, that track the S&P 500 Index.
In the International Equity category, BMO will become the co-leader with iShares as the low-cost provider for unhedged ETFs. The new management fee for BMO MSCI EAFE Index
These two competing ETFs do not have identical indexing strategies. BMO's EAFE fund is a large- and mid-cap mandate that provides exposure to an estimated 85% of the market capitalization of the overseas markets in which it invests. The more inclusive iShares ETF provides exposure to an estimated 99% of market capitalization.
In the same category, BMO stands alone as the soon to be low-cost provider for broad currency-hedged exposure to international equities. The new management fee for BMO MSCI EAFE Hedged to CAD Index
In the Emerging Markets Equity category, it's again BMO and iShares that will be the co-leaders in low-cost index investing. As is the case with overseas developed markets, iShares MSCI Emerging Markets IMI Index
The only fixed-income ETF affected by BMO's latest fee cuts is BMO Short Corporate Bond Index
|BMO ETF fee reductions|
|ETF||Current fee (%)||New fee (%)||Change (bps)|
|Source: BMO Asset Management Inc.|