Vanguard Group Unveils Canadian ETF Offerings

by Mike Holman

Earlier this year Vanguard Group announced they would be setting up shop in Canada.  At that time, there was no information on what kind of products they would offer or if they would be dealing directly with the investing public or through advisors.

Today, Vanguard announced they have filed the preliminary prospectus for six exchange traded funds (ETFs) which will trade on the Toronto Stock Exchange (TSX).

Here are the ETF details:

  • Vanguard MSCI Canada Index ETF, which will seek to track the performance of the MSCI Canada Index;
  • Vanguard Canadian Aggregate Bond Index ETF, which will seek to track the performance of the Barclays Capital Global Aggregate Canadian Float Adjusted Bond Index;
  • Vanguard Canadian Short-Term Bond Index ETF, which will seek to track the performance of the Barclays Capital Global Aggregate Canadian Government/Credit 1-5 year Float Adjusted Bond Index;
  • Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged), which will seek to track the performance of the MSCI U.S. Broad Market 100% Hedged to CAD Index;
  • Vanguard MSCI EAFE Index ETF (CAD-hedged), which will seek to track the performance of the MSCI EAFE 100% Hedged to Canadian Dollars Index; and
  • Vanguard MSCI Emerging Markets Index ETF, which will seek to track the performance of the MSCI Emerging Markets Index.

The ETFs themselves are not a surprise – a Canadian index, Canadian bond with medium duration, Canadian short term bond, US market index, EAFE market index (EAFE is short for Europe, Australia and the Far East) and Emerging markets.

These are the basic building blocks of a diversified global portfolio. The big surprise in my mind is that the US & EAFE index ETFs are Canadian dollar hedged. This is similar to the approach taken by iShares that hedges most of their non-Canadian ETFs as well.

I disagree with this approach as I believe that currency fluctuations in a non-hedged ETF offers more diversification than the more expensive hedged ETF.

The big question regarding these ETFs will of course be the fees. Unfortunately, there was no word on the management expense of these ETFs. Currently, Vanguard offers low-cost ETFs trading on the New York Stock Exchange which are available to Canadians. Most discount brokerages charge high currency exchange fees, so having cheap ETFs available on the TSX will reduce currency exchange fees considerably.

 Check out the comprehensive Canadian discount brokerage fee comparison.

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{ 8 comments… read them below or add one }

1 Mark

Surprising, when I heard that they were coming to Canada, I tought that they would offer MFs.

2 Mike Holman

@Mark – I would expect that eventually they will offer index mutual funds.

3 Balk

Hey Mr. Pillars,

Currently I hold US Vanguard ETFs (VTI, VXUS). Is there a maximum dollar figure I can hold without incurring extra taxes? If so, would holding the Canadian equivalents get around this?

Thanks,

Balk

4 Mike Holman

@Balk – There are no limits I’m aware of.

5 My University Money

I don’t want the hedge right now as the Canadian dollar should eventually sink to about 85 cents when markets eventually reach equilibrium in a couple of years. I love that Vanguard is entering our market and will force fees lower to compete.

6 My Own Advisor

A good summary Mike. I’m not a fan of currency hedging either, which is why I own a couple of Vanguard products in my RRSP already. That and the super cheap fees :)

The fees, ah yes, the big question. My guess is Vanguard will come in a few basis points under iShares. The optics alone will create a buzz.

Mark

7 Mike Holman

@My Uni $$ – It remains to be seen how much they can compete on fees. The fact is that there are already fairly cheap broad-based index ETFs available to Canadians.

@My Own Advisor – They will have to undercut iShares, otherwise what is the point of coming here?

8 Canadian Capitalist

I’m a bit disappointed with the currency hedged ETFs as well. Vanguard says this is their initial line-up, so I hope there are more interesting ones to follow.

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