Tuesday, 25 March 2014

Good news for investors - BlackRock Canada slashes fees on key index ETFs

iShares Canada ETF providers BlackRock have just announced immediate significant cuts to nine mainstream index ETFs, covering Canadian, US, developed country market and emerging market equities, as well as several bond funds. Morningstar compares the old and new expense ratios here while the BlackRock info is here.The reason this is great news for investors was well said by BlackRock itself - every dollar less in expense flows right into the pocket of the investor.

The longer the investment period the greater the impact through the effects of compounding. The cut of 0.20% in the MER of the Canadian Capped Composite equity index fund XIC means, for instance, that a $10,000 investment held thirty years that earned 5.2% net returns instead of only 5.0% would end up being worth $45,758 versus only $43,219, a $2,539 or 5.88% difference. Extend the holding period to thirty-five years and the difference grow to 6.9%.

Though not as powerful an effect of such lower MERs, at current low rates of return on all types of assets, the same compounding math provides a greater relative boost to net returns e.g. change the return pair to 4.2% vs 4.0% and the above calculation makes for $34,358 vs $32,434, a $1,924 or 5.93% difference.

Kudos to BlackRock. Let's hope this competitive move spurs the other ETF providers to sharpen their pencils too.

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