XIC vs VCN...time to change?

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strathglass
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XIC vs VCN...time to change?

Post by strathglass » 01 Jan 2015 19:12

I was considering changing from XIC to VCN. That was before the latest fee reduction last year from iShares (management fee reduced to 0.05%, matching Vanguard's fee for VCN).
However even with this fee reduction, according to TD DI information (Morningstar data, I believe), the MERs are as follows:
VCN MER: 0.13%
XIC MER: 0.27%
The difference, while small, does not seem insignificant (I've got over 100k in XIC currently).

So the question is - is it a good decision to move from XIC to VCN? Looking for data to help support (or not!) such a move.
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Re: XIC vs VCN...time to change?

Post by Koogie » 01 Jan 2015 19:26

Holding it in a registered or non registered account ?
Buy very little, sell even less.

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Re: XIC vs VCN...time to change?

Post by ig17 » 01 Jan 2015 20:24

TD DI data on XIC is out of date. XIC management fee is 0.05%. Add HST and a few misc expenses on top. The expected MER comes to 0.06% - 0.07%. You won't see this number in the 2014 report because fee reduction happened in the spring.

XIC is cheaper than VCN but the difference is quite small. VCN may be worth paying a bit extra, if you expect that Vanguard will treat you better than iShares.

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Re: XIC vs VCN...time to change?

Post by strathglass » 01 Jan 2015 20:39

Should have mentioned ... this is for an RRSP.
As to the MER data, that is the data as of November 30th, so I think it should be good - it does note that in addition to the 0.27% MER, the management fee is 0.05% (but maybe that MER figure does not catch the full effect of the fee reduction yet?)
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Re: XIC vs VCN...time to change?

Post by ig17 » 01 Jan 2015 20:50

Just because it says "data as of November 30th" doesn't mean that it's good. They are likely quoting MER from the last annual or semi-annual report. Either way, it wouldn't reflect the new management fee.

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Re: XIC vs VCN...time to change?

Post by strathglass » 01 Jan 2015 20:53

I was trying to see if I could see the MER info on cedar, but could not find it. Where can I find out the current MER data?
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Re: XIC vs VCN...time to change?

Post by Peculiar_Investor » 01 Jan 2015 21:08

strathglass wrote:Where can I find out the current MER data?
I would look directly at the providers websites for the information.

iShares Core S&P/TSX Capped Composite Index ETF | XIC
Management Fee
0.05%
If you want to get extra picky, read the Prospectus.

FTSE Canada All Cap Index ETF- Overview | VCN
Management fee 0.05%
however reading the fine print
The management expense ratio (“MER”) is as of December 31, 2013, and is expressed as an annualized percentage of the daily average NAV. The MER without any absorptions or waivers would have been 0.17% for VCN. The Manager expects to continue absorbing or waiving certain fees indefinitely, but may in its discretion, discontinue this practice at any time.
Again, if you want to read the Prospectus.
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Re: XIC vs VCN...time to change?

Post by ig17 » 01 Jan 2015 21:20

Management fee is the primary component of MER. New MER won't deviate too far from the new management fee.

Last year's annual report
http://www.blackrock.com/ca/individual/ ... -en-ca.pdf

Jump to page 6.

Management fee: 3,714,336
Total expenses: 3,721,817
Net assets: 1,329,701,408

2013 MER = Total expenses / Net assets = 0.27%

You will know 2014 MER when they issue 2014 Annual Report. As I mentioned, 2014 MER is based on the blended fee (before/after the reduction). To find the real current MER, you have to wait for 2015 Annual Report. It will come out in the spring of 2016.

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Re: XIC vs VCN...time to change?

Post by strathglass » 01 Jan 2015 22:35

ig17 wrote:Management fee is the primary component of MER. New MER won't deviate too far from the new management fee.
Thanks - I think this is the key thing, which I didn't realize.
So I guess I should therefore be OK to just stick with XIC!
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Re: XIC vs VCN...time to change?

Post by gsp_ » 01 Jan 2015 22:47

strathglass wrote:I was considering changing from XIC to VCN. That was before the latest fee reduction last year from iShares (management fee reduced to 0.05%, matching Vanguard's fee for VCN).
You have it backwards, it was VG which matched iShares and BMO just a few months ago. http://canadiancouchpotato.com/2014/10/ ... -its-move/

VCN/ZCN/XIC/HXT all charge the same management fee and should all have MERs of .06% once their lowered fee has been around for a year and a new annual report comes out. CCP has even assumed the new MERs on his site. http://canadiancouchpotato.com/recommended-funds/

Switch if you have a preference for VG, prefer the index VCN tracks or for any other reason but don't do it based on costs, they should all be identical.

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Re: XIC vs VCN...time to change?

Post by strathglass » 01 Jan 2015 23:02

gsp_ wrote:You have it backwards, it was VG which matched iShares and BMO just a few months ago.
...
Switch if you have a preference for VG, prefer the index VCN tracks or for any other reason but don't do it based on costs, they should all be identical.
I stand corrected.
As noted above, I will simply stick with what I have now - XIC. I don't have a strong enough preference for VG to switch!
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Re: XIC vs VCN...time to change?

Post by Bylo Selhi » 02 Jan 2015 08:53

gsp_ wrote:VCN/ZCN/XIC/HXT all charge the same management fee and should all have MERs of .06% once their lowered fee has been around for a year and a new annual report comes out.
A point of clarification (I'm sure you know this but for those who may not): Fees are charged daily, i.e. 1/365th of the current MER is charged on the daily asset base. So if someone switches to a new ETF now they will pay the new lower fee, not the blended fee that will be published in the annual report for calendar 2014.
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Re: XIC vs VCN...time to change?

Post by florch » 25 Nov 2017 10:45

Bump.

What are the 2017 thoughts on this? I've held XIC for years, but I recently opened an IB account and noticed for some reason that XIC is not eligible for higher margin but VCN is.

Also, and not exactly on topic but related - now that we are charged more tax for dividends, is there a change in sheltering priority? It used to go from Canadian dividends on one end to fixed income on the other end of the spectrum.

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Re: XIC vs VCN...time to change?

Post by Mordko » 26 Nov 2017 20:24

florch wrote:
25 Nov 2017 10:45
Bump.

What are the 2017 thoughts on this? I've held XIC for years, but I recently opened an IB account and noticed for some reason that XIC is not eligible for higher margin but VCN is.

Also, and not exactly on topic but related - now that we are charged more tax for dividends, is there a change in sheltering priority? It used to go from Canadian dividends on one end to fixed income on the other end of the spectrum.
1. XIC/VCN = 6/(3+3). One will outperform the other by a bit in any given year - only to go the other way next. Long term it is your asset allocation that will determine your return. Once you have a fund, stick with it.

2. Are we charged "more tax on dividends"? Since when?

3. There is an argument for sheltering fixed income (taxation). I chose to keep fixed income in a non-registered account because:

- Lower expected long-term return on FI vs stocks. Whatever grows more needs more sheltering so the taxman gets less.
- Fixed Income is a safety cushion, which one keeps for bad years. Easy access is important for this scenario - and I wouldn't want to have to decimate sheltered accounts after a crash.

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Re: XIC vs VCN...time to change?

Post by florch » 27 Nov 2017 22:09

I realize they are substantially the same. For some reason, XIC does not show up as eligible for higher margin and VCN does.

Eligible dividends in Ontario increased from 33.82% to 39.34% from 2015 to 2016 at the top rate as one example and similar increases at lower incomes. This is a combined increase of both the federal and provincial parts. At the same time the top income tax rate went from 49.53 to 53.53.

Unless it is for short term needs, I would shelter the income that attracted the highest taxes, although I like your idea of sheltering the income that was expected to earn the highest return. So first in your TFSA would be the highest tax and highest return, and then in your RRSP the highest taxed and not necessarily the highest return because you will eventually pay income tax on this, and finally outside of a sheltered account you could keep your lowest taxed and highest return. So, Interest and income at 53.53%, Eligible Div's at 39.34% and Cap gains at 26.76%.

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Re: XIC vs VCN...time to change?

Post by adrian2 » 28 Nov 2017 06:03

florch wrote:
27 Nov 2017 22:09
Eligible dividends in Ontario increased from 33.82% to 39.34% from 2015 to 2016 at the top rate as one example and similar increases at lower incomes. This is a combined increase of both the federal and provincial parts. At the same time the top income tax rate went from 49.53 to 53.53.
You are correct for an Ontario taxpayer with an annual income over $220k.
You are wrong for an Ontario taxpayer with lower income.
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Re: XIC vs VCN...time to change?

Post by florch » 28 Nov 2017 10:01

adrian2 wrote:
28 Nov 2017 06:03
florch wrote:
27 Nov 2017 22:09
Eligible dividends in Ontario increased from 33.82% to 39.34% from 2015 to 2016 at the top rate as one example and similar increases at lower incomes. This is a combined increase of both the federal and provincial parts. At the same time the top income tax rate went from 49.53 to 53.53.
You are correct for an Ontario taxpayer with an annual income over $220k.
You are wrong for an Ontario taxpayer with lower income.
Yes, I did state just one example. I'm not sure where the pattern falls apart. I think that taxes in general went up in this regard for upper middle if not middle income folks as well. I'm lucky enough to be somewhere in the upper middle, not at the top, but I still feel I'm heavily taxed and that it increased substantially starting in 2016.

That is pretty much out of my control without moving or some other drastic measure. I'm more concerned with how to best deal with the hand as dealt in terms of sheltering or borrowing to finance investment.

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Re: XIC vs VCN...time to change?

Post by adrian2 » 28 Nov 2017 12:11

florch wrote:
28 Nov 2017 10:01
adrian2 wrote:
28 Nov 2017 06:03
florch wrote:
27 Nov 2017 22:09
Eligible dividends in Ontario increased from 33.82% to 39.34% from 2015 to 2016 at the top rate as one example and similar increases at lower incomes. This is a combined increase of both the federal and provincial parts. At the same time the top income tax rate went from 49.53 to 53.53.
You are correct for an Ontario taxpayer with an annual income over $220k.
You are wrong for an Ontario taxpayer with lower income.
Yes, I did state just one example. I'm not sure where the pattern falls apart. I think that taxes in general went up in this regard for upper middle if not middle income folks as well. I'm lucky enough to be somewhere in the upper middle, not at the top, but I still feel I'm heavily taxed and that it increased substantially starting in 2016.

That is pretty much out of my control without moving or some other drastic measure. I'm more concerned with how to best deal with the hand as dealt in terms of sheltering or borrowing to finance investment.
The Ontario top tax rate went up, by quite a bit. Nothing specifically for dividends, just the tax rate in general.
The lower tax brackets were unaffected, in general and for dividends specifically.

You originally stated: "now that we are charged more tax for dividends". For the vast majority of people, that's not the case.
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Re: XIC vs VCN...time to change?

Post by AltaRed » 28 Nov 2017 12:17

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Re: XIC vs VCN...time to change?

Post by florch » 28 Nov 2017 13:05

A2, you are right. Only those above $200k were affected for dividends, but from a 3.5 to 5.5% increase. I was under the impression it went down all the way to about $80k, probably from reading the chart brackets incorrectly.
Thanks Alta for the clarification I was looking for.

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Re: XIC vs VCN...time to change?

Post by bill » 29 Nov 2017 13:45

Re: the original question, I changed most of my Ishares shares in LIRA and RRSP accounts to Vanguard equivalents a couple years ago when Investor's Edge offered free ETF transactions for a couple of months. The difference in fees wasn't huge, but it was a couple hundred K$ in those ETFs. VCN was the largest purchase for me at that point.

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