Thanks for the well thought out post on ETF Funds and your analysis of the portfolio that you created. I have not yet invested in ETF Funds personally but have done quite a bit of research on them and have focused primarily on single-country ETF Funds. Have you invested in any single-country ETF Funds?

You can find some of my articles on single-country ETF Funds at http://financialplanneralliance.com - my general ETF Funds overview is at http://financialplanneralliance.com/2008/06/etf-funds.html

I’d love to hear from you going forward as your portfolio builds if you decide to invest in any single-country or sector-focused ETF Funds.

Please email me at christopher.hege@gmail.com

Thanks!

Thanks for a great blog and I am hoping that you can give me some advice on the following dilema about how one would, or even if one should rebalance an all ETF portfolio.

My wife and I have 4 trading accounts - an rrsp account for each of us, a spousal rrsp account and a joint non-rrsp account. Our portfolio is simple at this stage and consists of 6 different etf’s spread between these accounts. However, each account does not have the same mix of all 6 etf’s. 1.e. you may find one etf located in only one account and not the others.

This poses a problem for rebalancing as one cannot transfer funds between the rrsp accounts. e.g. if XIC located in my rrsp account goes up and VTI in my wifes rrsp goes down as a percentage of the overall portfolio, I cannot sell some of my XIC shares and shift the cash into my wifes rrsp account to buy more VTI to rebalance the overall portfolio. The only way to do this as far as I can see is to hold all 6 etf’s in all 4 accounts and then rebalance each account each year. This however costs a fortune in transaction fees.

Would the best way to do this therefore be to simply buy more of the etf’s that have gone down as a percentage of our portfolio and not buy those that have gone up in value and therefore now comprise a greater percentage of the portfolio?. i.e. in the previously mentioned scenario, I would simply buy more VTI this year and not buy anymore XIC to bring the portfolio back to its original allocation.

Thanks for your help and I look forward to your comments.

Thanks
paul

This is actually false as the MER of XIN is 0.50% and the MER of EFA is 0.15%. So even if iShares Canada used to list XIN has having an MER of 0.35% (ignoring the 0.15% coming from the underlying investment in EFA), it is still higher than EFA.

So, again, based on this new information I am seriously reconsidering EFA. Since E*Trade is only charging me $10 per transaction right now for some reason, and given the strong dollar, I might make a switch. It is almost time for me to buy a little more International equities so I should do a sell at the same time to minimize cost.

That would leave me with a lot of foreign currency holdings, EFA, VTI, VWO so there is some risk there to think about. When I add in 5% XRE eventually (XRE) I might append that to my fixed income portfolio which is currently at 25%, making the total fixed income part 30%. Add in the 8% or so XIC and that leaves me with 38% Canadian dollar holdings. Soon, we might start contributing money to a non-RRSP account. For that, I may use Canadian investments due to their better tax treatment. So I think I am probably in good shape.

Actually Martin Gale’s article I linked to was definitely a long time ago. In this article, “Changes To Barclays Canadian iShares: XSP and XIN“, he modified his approach a bit and advised against XIN, unless you are really worried about the currency thing.

One comment about about EFA and any other international ETFs such as the Vanguard offerings: Though they trade on US exchanges in in USD they actually reflect the currency movements of the currencies of the under-lying stocks, which in most cases are spread over many countries. So XIN isn’t a USD risk, it’s all the other currencies. The question is whether it is worth the extra cost of hedging within XIN compared to EFA. The cost is more than just the extra MER of 0.15%, it is the 1-1.5% under-performance of XIN relative to EFA, which shows up in the tracking error (see the iShares Canada website). Though I will continue to hedge the specific USD exposure by buying XSP as opposed to VTI (complemented with small cap/value Vanguard ETFs that are unfortunately unhedged), I’m really considering getting out of XIN into things like VGK, VPL and VWO (not EFA because they’re lower MER and have more holdings).

VEU is “total” international ETF that also looks good - with an US focus (all except US).