How Canadians can follow Vanguard

Canadians’ principal interest in Vanguard will be in its products, which we discuss in the next section. But if you wish to follow Vanguard and its educative or research initiatives, it is easy to do so:

• The Vanguard blog
• The Vanguard regular site
• Vanguard tweets 
• Vanguard press releases and literature
• Vanguard research papers
• John Bogle , the retired founder of Vanguard , has his own blog where you can follow his speeches and texts. Vanguard supports Bogle’s current efforts .
• In addition, the Bogleheads (followers of Bogle) have an active forum which discusses investing following the Vanguard approach.

How can Canadians access their products?

As discussed above, Canadians cannot directly open an account with Vanguard, and thereby invest in its mutual funds, ETF’s, annuities and other financial products. But they can invest in Vanguard’s listed ETF’s using a Canadian broker (online or full service). Our next section examines the Vanguard ETF family of funds

Vanguard ETF’s: an overview

Vanguard historically specialized in index mutual funds, but more recently began offering ETF’s which are based on the corresponding mutual funds. Vanguard now offers a very broad range of ETF’s, most of which are listed on the NYSE. Its ETF’s are principally index funds, but it also offers actively managed funds. Its ETF’s tend to be large and actively traded.

Its low cost index ETF fund offering is so extensive it permits retail investors to set up entire portfolios with Vanguard-only funds. Examples of such lazy portfolios compiled by Paul Farrell of Market Watch can be found here or as a PDF doc.1742 .  CanadianCouchPotato has discussed or as a PDF doc.1743R how Canadians might wish to canadianize Farrell’s lazy portfolios.  On a general discussion with respect to using ETF’s in your portfolio, see our commentary Portfolio Management 5 - ETFs for your portfolio .

There are two caveats to the above in the case of Canadian investors.

Firstly, Vanguard does not yet have a Canada only fund. So Canadian investors who naturally wish to invest a significant portion of their investments in their home market must choose other avenues. The Canada-only index ETF most Canadians choose is the BlackRock TSX listed ishares S&P/TSX 60 index fund (ticker XIU), which has a low 0.17% management fee (note: the MER is higher).

Secondly, Vanguard does not have an ETF which tracks the popular S&P 500 US index, although it does have an ETF (ticker VTI) which tracks the total US equity markets and has a very low 0.06 % MER; see CanadianCapitalist or as a PDF doc.1744. It does have a mutual fund which tracks the S&P 500, and it is by far its largest mutual fund. However, as explained above, Canadians cannot directly invest in US based mutual funds. As a result, the most popular US listed S&P 500 tracking ETF is one offered by State Street (ticker SPY) which has a low 0.08% MER; see other S&P 500 tracking alternatives in the 2007 article or as a PDF doc. 1745 by Matt Kranz .The good news is that Vanguard has announced it will soon launch its own US listed S&P 500 tracking ETF with a even lower MER of 0.06%. This has attracted significant media attention in the US and even in Canada: see Won G&M 2010 or as a PDF doc.1746  and Johnston ETFDataBase or as a PDF doc.1747 . 

Vanguard international equity ETF’s

Other Vanguard ETF’s of particular interest to Canadians include the following.

Investing in emerging markets has historically involved relatively high MER’s, even for index funds. Vanguard offers an attractive low-cost emerging market index ETF:

Vanguard Group, the low-cost giant based in the United States, currently has the most inexpensive emerging markets ETF. Traded under the symbol VWO, the ETF tracks the benchmark MSCI Emerging Markets Index and sports a 0.27% total expense ratio; that’s pretty darn cheap compared to the iShares Emerging Markets Index or EEM, which levies 0.72% for the same portfolio. VWO also offers a high degree of daily trading volume – usually implying a better bid/ask spread than those ETFs with less trading volume. Source: RosemamBlog or as a PDF doc.1748  See also Tom Lyndon ETFTrends or as a PDF doc.1749 and Tom Lyndon2 ETFTrends or as a PDF doc.1750 .

Vanguard also offers a index ETF focused on Europe/Asia ETF fund VEA ticker, with a low MER of 0.15%.  See CanadianCapitalist or as a PDF doc.1751 and InvestingIntelligently or as a PDF doc.1752.

Finally, Vanguard more recently created an index ETF (the FTSE All-World Ex-U. S. ticker VEU/NYSE) which permits, in one click, to invest in all equity markets outside the USA:

The US$5.4-billion Vanguard FTSE All-World Ex-U. S. ETF, launched in March 2007, charges an annual MER of just 0.25%. It currently trades at about $45 US/share with avg. daily volume of 825,000. The ETF holds shares in companies based outside the U.S.. Diversification is considered the ultimate way to obtain better risk-adjusted returns, and this fund provides as much foreign equity diversification as possible in a low-cost portfolio. By investing in every possible large- and mid-cap company outside the United States in proportion to each company's market value, this fund takes passive investing to its logical extreme. Its 10 largest holdings, which together account for 9.2% of its assets, 7 are HSBC Holdings PLC, Nestle SA, BP PLC, Total SA, Novartis AG, BHP Billiton Ltd., Roche Holding AG, Vodafone Group PLC, Telefonica SA and Banco Santander SA-- and 2,150 others. The Vanguard website warns, the funds are for those who plan to hold for at least 5 years who are seeking long-term growth of capital and broad exposure to international stock markets. It is unsuitable for those unwilling to accept significant fluctuations in share price, or for those seeking significant dividend income, like retirees/pensioners. The fund is US$ denominated so there is currency risk. For what it’s worth ,Morningstar gives a 4 stars rating to this fund. Prospectus available at https://personal.vanguard.com/us/funds/prospectus?FundId=0991&FundIntExt=INT Source : Canadian Fund watch or as a PDF doc.1753

Convenience aside, a cheaper alternative to the VEU may be to instead combine investments in the VWO ETF and the Vanguard Europe/Asia ETF funds (ticker VEA); see CanadianCapitalist or as a PDF doc.1754 .  However a FinancialWeBring forum discussion or as a PDF doc.1755 raises tax questions with respect to this strategy. In any event, whether you go the VEU or the combined  VWO/VEA route, you are getting rock-bottom MER pricing.

Other Vanguard ETF’s and other products

Investors seeking US dividend focused stocks can consider a number of Vanguard dividend focuseds ETF’s; see TheDividendGuyBlog or as a PDF doc.1756.

Vanguard offers annuities on what appear to be attractive terms. Although the offer seems limited to US persons, it does enable you to get an instant quote (I picked Vermont as my state of residence for this purpose) and get a feel for what the market is for US pay annuities. 

Vanguard offers an interesting US index REIT ETF (ticker VNQ) with a low 0.13% MER  ; see ETFMarketPro or as a PDF doc.1757

Vanguard also offers a number of index bond funds. See SeekingAlpha or as a PDF doc.1758 for a comparison of Vanguard and ishares bond ETF’s .

Conclusion

We hope this commentary has given you a good overview of one of the largest and most retail-investor friendly, financial services companies in the world. Even though it does not operate directly in Canada, it continues to put downward pressure on the level of MER’s of ETF’s and even of mutual funds in Canada. Now, if only they would decide to start up a Canadian-based Canadian index equity fund.