Spencer Colby/The Canadian Press
There’s an odd exception to the success of Bank of Montreal’s BMO-T made-in-Canada ETF business.
BMO is not much of a player in the growing segment of the exchange-traded fund business catering to investors who value the simplicity and practicality of buying a low-cost, fully diversified portfolio in a single ETF. And so, BMO ETFs is cutting the cost of its suite of four asset allocation ETFs.
The management fee for each fund falls by0.03 of a percentage point to 0.15 per cent as of the close of business on Friday. The management fee is the biggest component of the management expense ratio, a definitive measure of how much it costs to own an ETF or mutual fund. MERs for the four BMO asset allocation ETFs are currently 0.2 per cent, so expect something like 0.17 per cent once the management fee is cut.
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BMO’s fee cut for its asset allocation ETFs brings it to the same level as TD charges on its lineup of four funds in this category. TD is likewise a small player in asset allocation ETFs, but that’s to be expected because the bank entered the exchange-traded fund business later than BMO.
A quick MER survey among other providers of asset allocation ETFs:
- BlackRock’s iShares is at 0.2 per cent.
- Fidelity is at 0.39 to 0.43 per cent
- Global X is at 0.2 per cent
- Mackenzie is at 0.18 to 0.29 per cent
- Vanguard is at 0.24 per cent
You can build a portfolio of individual ETFs at a lower cost than owning an asset allocation ETF. The modest MER premium gets you full diversification in bonds and Canadian, U.S. and international stocks and automatic rebalancing to ensure holdings stay close to the target asset mix.
Fee competition between asset allocation fund providers comes down to how much of a premium to charge. BMO’s bet is that lower fees will pay off by attracting more money from cost-conscious DIY investors. The four BMO ETFs in the asset allocation category have total assets of about $1-billion, compared to $7.7-billion for the iShares Core Equity ET Portfolio XEQT-T alone.
Aside from asset allocation ETFs, BMO has been an ETF industry force. Its $124-billion in assets at the end of April compares to $147-billion for the RBC-iShares group, $78-billion for Vanguard and $37-billion for Global X. BMO is the sole Canadian-based provider in this group.
Some key differentiators in asset allocation ETFs include the level of exposure to Canada and the U.S. and international developed stock markets, emerging market exposure and crypto exposure. Fees are right up there as well, and now there’s more to consider as BMO cuts costs.