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How are management fees paid on/by ETFs?

Discussion in 'Other Asset Classes' started by KayTea, 20th Jun, 2016.

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  1. KayTea

    KayTea Well-Known Member

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    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
     
  2. Hodor

    Hodor Well-Known Member

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    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.
     
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  3. Redwing

    Redwing Well-Known Member

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    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

     
  4. KayTea

    KayTea Well-Known Member

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    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. :(
     
  5. Hodor

    Hodor Well-Known Member

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    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%.
     
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