Friday, 3 September 2010

iShares XTR Changes from Passive to Active

The steady disappearance of the income trust sector as a result of the looming 2011 federal tax change has forced iShares' hand in an interesting way regarding the now formerly-named iShares Income Trust Index Fund (symbol: XTR). Following a shareholder vote (press release here), the fund's name, strategy and investment objective have changed fairly radically - from passive index tracking of income trusts to active management of any and all income bearing investments under the new title iShares Diversified Monthly Income Fund.

As significant as the change is a non-change - the management fee will remain at 0.55% including, as the press release takes pains to point out, any embedded fees arising from XTR owning other ETFs. Though there probably will be higher costs for XTR shareholders (which we will be able to find out only later when annual reports are issued) from more frequent trading due to active management, I find it refreshing that active management will in this case be associated with low fees, a situation found all-too seldom in Canada. I hope that the modified presence of XTR as a reasonable size fund ($200 million in assets) within the leading ETF provider puts some pressure for change to lower fees in the Canadian fund industry. Maybe the low fee will in itself be good to control excessive trading by XTR portfolio managers - they won't get paid much so why would they bother spending a lot of time on it and as we all know, excessive trading lowers returns.

It looks as though XTR is changing into a fund of funds since it will "... invest primarily in income-bearing Canadian iShares Funds". There may be duplication or overlap with its own iShares Conservative Core Portfolio Builder Fund (symbol XCR, MER 0.60%). As of September 2nd, the XTR fund holdings have not changed away from income trusts so I'll have to check back in a month when Blackrock says it will have completed the changeover to see how alike XTR and XCR may be. XCR is so small, with only $8 million in assets, that maybe they should just fold XCR into XTR.


My Own Advisor said...

Good post. I probably won't own this anytime soon, for the reasons you outlined.

How about you?

CanadianInvestor said...

No, I don't own any XTR and don't plan to buy any. Some of the companies in the fund could be interesting e.g. NWF.UN but I am trying to stick to an asset allocation model - my portfolio looks like the Fundamental Weight portfolio shown towards the bottom of my blog.

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