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Compare buying an ETF to the cost of buying its stocks
| Cost Comparison: ETF vs Stocks in the ETF | ||
| Canadian ETF | ETF Cost | Stock Cost |
| iShares CDN Tech Sector (XIT) | $1945.00 | $160.00 |
| iShares CDN REIT Sector (XRE) | $1945.00 | $240.00 |
| iShares CDN Financial Sector (XFN) | $1945.00 | $580.00 |
| iShares CDN Dividend (XDV) | $1770.00 | $600.00 |
| iShares CDN Gold Sector (XGD) | $1945.00 | $700.00 |
| iShares CDN Materials Sector (XMA) | $1945.00 | $1080.00 |
| iShares CDN Energy Sector (XEG) | $1945.00 | $1160.00 |
| iShares CDN Jantzi Social (XEN) | $1770.00 | $1200.00 |
| iShares CDN LargeCap 60 (XIU) | $615.00 | $1220.00 |
| iShares CDN Growth (XCG) | $1770.00 | $1260.00 |
| iShares CDN Income Trust Sector (XTR) | $1945.00 | $1280.00 |
| iShares CDN Value (XCV) | $1770.00 | $1600.00 |
| iShares CDN Completion (XMD) | $1945.00 | $3860.00 |
| iShares CDN SmallCap (XCS) | $1945.00 | $4220.00 |
| iShares CDN Composite (XIC) | $895.00 | $5060.00 |
| iShares CDN S&P 500 (XSP) | $860.00 | $10020.00 |
| iShares CDN MSCI EAFE (XIN) | $1735.00 | $16360.00 |
| ETF Stats | ||
| Canadian ETF | MER | # Stocks |
| iShares CDN Tech Sector (XIT) | 0.55% | 8 |
| iShares CDN REIT Sector (XRE) | 0.55% | 12 |
| iShares CDN Financial Sector (XFN) | 0.55% | 29 |
| iShares CDN Dividend (XDV) | 0.50% | 30 |
| iShares CDN Gold Sector (XGD) | 0.55% | 35 |
| iShares CDN Materials Sector (XMA) | 0.55% | 54 |
| iShares CDN Energy Sector (XEG) | 0.55% | 58 |
| iShares CDN Jantzi Social (XEN) | 0.50% | 60 |
| iShares CDN LargeCap 60 (XIU) | 0.17% | 61 |
| iShares CDN Growth (XCG) | 0.50% | 63 |
| iShares CDN Income Trust Sector (XTR) | 0.55% | 64 |
| iShares CDN Value (XCV) | 0.50% | 80 |
| iShares CDN Completion (XMD) | 0.55% | 193 |
| iShares CDN SmallCap (XCS) | 0.55% | 211 |
| iShares CDN Composite (XIC) | 0.25% | 253 |
| iShares CDN S&P 500 (XSP) | 0.24% | 501 |
| iShares CDN MSCI EAFE (XIN) | 0.49% | 818 |
| The number of stocks needed to replicate different ETFs | ||||
| % of ETF | ||||
| Canadian ETF | 25% | 50% | 75% | 100% |
| iShares CDN Tech Sector (XIT) | 1 | 2 | 4 | 8 |
| iShares CDN REIT Sector (XRE) | 2 | 3 | 7 | 12 |
| iShares CDN Financial Sector (XFN) | 2 | 4 | 7 | 29 |
| iShares CDN Dividend (XDV) | 4 | 10 | 18 | 30 |
| iShares CDN Gold Sector (XGD) | 2 | 3 | 7 | 35 |
| iShares CDN Materials Sector (XMA) | 2 | 4 | 12 | 54 |
| iShares CDN Energy Sector (XEG) | 2 | 5 | 11 | 58 |
| iShares CDN Jantzi Social (XEN) | 4 | 9 | 17 | 60 |
| iShares CDN LargeCap 60 (XIU) | 5 | 12 | 25 | 61 |
| iShares CDN Growth (XCG) | 3 | 7 | 15 | 63 |
| iShares CDN Income Trust Sector (XTR) | 3 | 11 | 27 | 64 |
| iShares CDN Value (XCV) | 3 | 8 | 17 | 80 |
| iShares CDN Completion (XMD) | 17 | 45 | 91 | 193 |
| iShares CDN SmallCap (XCS) | 23 | 58 | 108 | 211 |
| iShares CDN Composite (XIC) | 7 | 19 | 50 | 253 |
| iShares CDN S&P 500 (XSP) | 15 | 53 | 151 | 501 |
| iShares CDN MSCI EAFE (XIN) | 27 | 90 | 257 | 818 |
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| Introduction |
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This calculator explores two options for long-term index investors
with a focus on fees. The first option is to purchase an iShares
exchange traded fund (or ETF). Here fees include a brokerage
commission to buy the ETF and an annual fee (or MER) that is charged
by the ETF. The second option is to buy the index's stocks directly.
In this case many more brokerage commissions are charged but there is
no annual fee.
At first glance, the choice between buying a low-cost exchange-traded fund that holds many stocks or buying each of the stocks directly appears to be obvious. The exchange-traded fund is likely to be the better bargain. However, buying the stocks directly may be better for some investors because the Canadian stock market is very small and it is dominated by a few big names. As a result, one might reasonably approximate an index fund by holding only a few stocks. One could even replicate the entire index by buying all of the stocks that it holds. Our calculator lets you run the numbers for various portfolios sizes, holding periods, growth rates, commission costs, replication ratios, and dividend reinvestment frequencies. Try it out. Run a few different scenarios and you'll soon discover that buying the stocks directly can be a good bargain for longer holding periods and larger portfolios sizes. This is particularly the case for specialized ETFs that track only a few stocks. On the other hand, inexpensive ETFs such as the iShares Large Cap 60 (XIU) or very diversified ETFs such as the iShares S&P500 (XSP) continue to represent good bargains for many investors. |
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| Related Articles |
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| Unbundling Canadian ETFs |
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| Definitions and Notes |
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Portfolio Size ($): The starting size of the portfolio in dollars.
Commission Per Trade ($): The cost of each stock or ETF purchase. We assume at least one buy and one sell transaction for each stock and ETF. That is, the stocks and ETFs are bought initially and sold a the end of the holding period. Additional commissions are charged as dividends are reinvested.
Annual ETF Growth Rate (%): The assumed growth rate of the ETF. As the ETF grows, the dollar cost of its MER fee also increases. Here we approximate the annual cost by charging by the ETF at its MER rate based on the average portfolio size at the start and the end of the year.
Dividend Reinvestment (Times Per Year): The number of times a year that dividends are reinvested. If 4 is selected (quarterly reinvestments) then 4 commissions will be charged per year for the ETF and 4 times the number of stocks used to replicate the index will be charged per year for the stock portfolio.
Amount of index to replicate (%): Select 100 here if you want to buy every stock in the ETF which represents 100% replication. Select a lower percentage if you want to buy the largest stocks that form 25, 50, or 75 percent of the index. Buying less than 100% of the index is less expensive but your returns will not match the index's returns.
All ETF data is based on iShares info collected on February 21, 2008.
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