Q&A: Vanguard ETFs

The U.S. version has a much lower cost so this reader wonders why he should buy Canadian. Here, Gordon Pape gives his view.


Q – I have been looking at Vanguard’s ETF line-up in Canada and the USA. The MER on the U.S. funds is always lower when bought in the U.S. instead of in Canada. For example, VOO, which is the U.S. version, has an MER of 0.5%. VFV, the Canadian version of the same fund, has an MER of 0.18% (3.6 times higher). These funds both track the S&P 500 so the cost should be identical.

The only risk difference I can see is currency and the cost of changing from Canadian dollars to U.S. dollars if I do not have a U.S. dollar account.

Is there some hidden tax or fee that I am not seeing when I buy in the USA? I can’t see why I would pay 3.6 times the MER if all other things are equal. – John K.

A – You’re right – there is a big differential between the U.S and Canadian versions. What makes this even more frustrating for investors is that the Canadian fund invests primarily in units of the U.S. fund. So why not just go ahead and buy the lower-cost version on the New York Stock Exchange, as you suggest?

There are a couple of reasons why the Canadian version might be preferable in certain cases. First, there’s the currency exchange factor, which you point out. If you don’t have a U.S. dollar account to pay for the shares, you’ll be hit with a conversion fee. Second, investors who have significant U.S.-based assets, such as real estate, stocks, etc., may prefer the Canadian ETF to reduce exposure to U.S. estate tax.

If neither of these is a concern, go for the U.S. version. – G.P.

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