Exchange Traded Funds Have only a 7% Market Share in Canada

etf

According to the National Bank of Canada, only 7% of invested monies in Canada find their way into exchange traded funds (etfs).

That means 93% of monies invested by Canadians is still going into high fee mutual funds!  What a depressing start to the week.

To make matters worse, our mutual funds are among the most expensive on the planet with an average annual fee of 2.5%.  I know readers here know how damaging these fees are to the long term health of their retirement savings, but not enough Canadians have figured this out yet.

To compare, in the United States, the market share for etfs is 14% and growing rapidly.   Americans pay much less for mutual funds than we do here in Canada and they’re still deserting them much faster than we are.

So why are Canadians so unconcerned about high fees?  Over and over research tells us that high fees damage returns more than any other factor.  Are Canadians just more gullible to the investment advisor’s smile and hand shake?  Are we too polite to question these fees?   Let’s hope we can get the message out to as many Canadians as possible, especially young people who have the most to lose from high fees and lousy returns.

New ETFs are really mutual funds with a twist.

Unfortunately, the smart men and women on Bay and Wall Street are starting to figure out that the old mutual fund model is in trouble.  So they’ve started creating new products that they call etfs but  act similar to mutual funds, albeit with lower fees   So now we have sector specific etfs, low volitility etfs, covered call etfs, put write etfs, equal weight etfs, long/short etfs, leverage etfs, bull/bear etfs, guru etfs, commodity etfs, etc.  The list never ends.

On the positive side, these new etfs typically have annual fees of 0.65% or less, which is much better than the average 2.5% mutual fund fee. However, the 0.65% is still much higher than the 0.05% fee for Vanguard Canada’s VCN and I haven’t seen any proof that they new funds will do any better or worse than the low cost funds they are meant to replace.

They are also confusing and may push naive investors into the arms of investment advisors who are only too happy to offer advice and guidance to calm our nervous fellow Canadians.  And the cost of this advice? Roughly a 1% annual fee.  Ouch!

0.65% for the etfs, 1% for the advisor and  we’re almost back to the same fee structure as the old mutual fund model.

We all know a better alternative.  Follow a simple DIY strategy of buying a few low cost etfs and keep more of your money.

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