ETF How are management fees paid on/by ETFs?

Hi guys.

Newbie-to-ETFs 'quick question' (I hope) - how are management fees paid on ETFs?

eg. If an investment company (e.g.. Vanguard) has a fund available that can be purchased directly through the ASX, using a share code, then how does the company 'get paid'? Is there a 'bill' from the company, or do they just return less to the shareholders after they take their % of the shares increased value?

Cheers,
KayTea

 

You don't receive a bill.

You could expect an ETF that tracks its index perfectly to return the index minus the MER. How exactly this is taken from the fund and the frequency I can't help you with.

 

Vanguards funds have an expense ratio i.e.

VAS 0.15% p.a
VEU 0.13% p.a.
VTS 0.05% p.a

The expense ratio is its daily operating costs, expressed as an annual percentage

Hence why Bogle is always saying "costs matter", costs have a drag on your funds performance

Another fund may have

 

But isn't it like paying for any other service? They are doing the work - I'm just investing in, and benefitting from, what they are doing? Or have I got it all wrong?

Sorry - I've read up on ETFs (but clearly, not in enough detail). I keep comparing my ETF knowledge to what I already know about trading individual shares, and I think I may be confusing myself.

 

I think you are on the right track.

The "fee" ETFs charge is known as a management expense ratio (MER) and is usually quoted as a %.

VAS has a MER of 0.15% so they take 0.15% of funds under management (FUM) per year in fees. The index it tracks is the ASX300 so expected performance is the ASX300 index minus 0.15%.