Sure, when you put money into these ETFs, you will lose 15 percent of your dividends to withholding tax. Still, for a lot of, it is a worthwhile trade-off to realize access to an important U.S. stock index – a benchmark that has outperformed 88 percent of all U.S. large-cap funds over the past 15 years, in accordance with the Standard & Poor’s Indices Versus Active (SPIVA) report.
But wait, those aren’t your only options. And you would possibly not know that they don’t seem to be even the most affordable. Just as you may get the identical quality at a lower cost from no-name brands in the shop, other ETF managers have been quietly launching competing U.S. stock index ETFs that include even lower fees. Here’s what you must know to make an informed decision.
The seek for cheaper alternatives to the well-known S&P 500 ETFs – similar to VFV, ZSP and XUS – leads us to 2 lesser-known but highly competitive options: the TD US Equity Index ETF (TPU) and the Desjardins American Equity Index ETF (DMEU). Launched in March 2016 and April 2024, respectively, these ETFs track the Solactive US Large Cap CAD Index (CA NTR) and the Solactive GBS United States 500 CAD Index. “CA NTR” stands for “Net Total Return,” meaning the index takes under consideration returns after withholding taxes, providing a more accurate measure of what Canadian investors could take home.
Essentially, these indexes provide U.S. equity exposure without the licensing costs related to the branded S&P 500 index, which is a big advantage in keeping costs down. You can consider Solactive because the RC Cola of the indexing industry, S&P Global as Coca-Cola, and MSCI as Pepsi.
For TPU, the management fee is 0.06% and the general MER is 0.07%. DMEU charges a management fee of just 0.05%. As the corporate has not been trading for a full yr, its MER has yet to be determined, but it surely is anticipated to be competitively low.
In terms of portfolio composition, there may be little difference between these ETFs: VFV, TPU, and DMEU. Looking at the highest 10 holdings, the weightings of those ETFs have a really similar alignment with only minor deviations. Even when comparing sector allocations between TPU and VFV, they’re closely aligned and reflect a consistent approach to capturing the broad U.S. equity market. However, looking slightly closer on the technical features, the indices these ETFs track – the Solactive indices for TPU and DMEU versus the S&P 500 for VFV – have some notable differences.
The S&P 500 just isn’t so simple as it could appear, nevertheless. It doesn’t just track the five hundred largest U.S. stocks. Rather, what gets included is on the discretion of a committee and subject to eligibility criteria similar to market capitalization, liquidity, free float and positive earnings. This makes the index more rigorous and somewhat more lively than you would possibly have thought.
In contrast, the Solactive indices utilized by TPU and DMEU are more passive. They simply track the five hundred largest U.S. stocks by market capitalization, with minimal additional screening criteria. This direct approach gives these indices a more passive character in comparison with the S&P 500.
