XIC vs XIU MER
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Thread: XIC vs XIU MER

  1. #1
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    XIC vs XIU MER

    I'm a little confused as to why the MER of XIU (0.18%) is greater than that of XIC (0.06%). XIC holds four times the amount of stocks and as well has around a quarter of the assets. Both of these would suggest it should have a larger MER. Does anyone know why the difference?


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    Blackrock wanted to introduce their "core" portfolio. Which was taking a bunch of different funds that they felt covered the entire market, lowering their fees and promoting them heavily.

    XIC was most likely chosen over XIU because XIC covered more of the Canadian market, also they didn't have to lower the fee on XIU which was a much bigger fund at the time. People have the choice to move over to the lower fee fund, but for the majority who just leave their money in XIU BlackRock will keep getting that bonus .12% on ~12 billion every year.

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    Right, XIC was chosen to be part of their "core" portfolio. There are many reasons one might still prefer XIU though, and I continue to generally recommend XIU

    * XIU consistently has higher performance even after MER
    * XIU is the oldest, best established, and largest ETF in Canada
    * XIU liquidity is by far the best, which means you lose less in each trade
    * XIC changed its strategy over the years, whereas XIU has always been the same (18 year consistency)
    * XIU has a higher proportion of pure eligible dividends, amazingly good for non-registered
    * XIU does less securities lending, so there's less risk of shareholder loss in a hedge fund blowup

    In theory (on paper) XIC is the better pick because it has a more diverse portfolio. In practice, XIU has proved to be the better ETF so far. I think it's significant that XIU has such a long track record using the same strategy (60 large caps).

    Also, XIU outperforms XIC. I suspect that after-tax XIU returns are even better due to slightly higher proportion of eligible dividends.
    Last edited by james4beach; 2017-05-18 at 11:37 AM.

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    Total 15 year return is 7.47% for XIU and 7.32% for XIC. Not all that different. XIC cut fees in 2014. YTD XIC outperfromed by 0.12%.

    Assume XIU is heavier in financials and other large firms that performed well in recent years. There is no guarantee that future will mirror the past, which is why I chose lower MER and higher diversification of XIC. Smaller companies, which are represented in XIC, are supposed to outperform over long periods of time. We shall see.

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    I think their both good funds, but I'm with Mordko on this. The over performance seems to be mostly from the higher percents of the big banks.

    And worrying about the liquidity of a 3 billion dollar fund, vs. a 12 billion dollar fund doesn't really seem like a valid reason to choose one over the other. Nor the fact that one fund is 18 years old when the other is 16.

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    Agree with CalgaryPotato and Mordko. With ETFs the size of XIC and XIU, liquidity et al is not an issue. The 60 large caps primarily drive performance anyway in XIC. Just like VTI performance is not much different than S&P500 performance in the USA. We are talking decimal points, which before spreadsheets, wasn't even a consideration.

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    I agree it's splitting hairs and good point about XIU outperforming due to heavy financials. I forgot about that point; that may be temporary.

    The liquidity issue is real though. XIC often has a 2 cent spread (where the large number of shares sit at bid/ask) whereas XIU is always 1 cent. And daily volume and liquidity is much higher in XIU.

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    James.... c'mon now, you can't be serious about debating a 2 cent spread on a $24 ETF? The market price of the ETF can move more than that in a mere market minute. There is NO liquidity issue.

  10. #9
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    Quote Originally Posted by james4beach View Post
    The liquidity issue is real though. XIC often has a 2 cent spread (where the large number of shares sit at bid/ask) whereas XIU is always 1 cent. And daily volume and liquidity is much higher in XIU.
    On a million dollars that 1 cent difference is around $400. Meanwhile the difference between .06 MER and .18 MER is about $1200/year. So unless you're talking about moving a large volume in and out in a couple of months, I'd put XIC ahead based on costs.

    XIU may still make more sense if you are talking unregistered, or if you need the distributions, but on a cost basis you aren't going to convince me that the spread is more important than the MER.

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    I always bid 1 cent below the asking - to avoid ECN fees. The order always gets filled anyway. Guess that also removes the major downside of XIC's 2 cent spread (ouch!)


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