What is an ETF fee?
The ETF fee is called an 'expense ratio', although it is often known as the management expense ratio (MER) or ongoing charges figure (OCF). An expense ratio is simply the ongoing cost of investing in a mutual fund or exchange-traded fund (ETF), and it’s charged as a percentage of the money you have invested in the fund. It is made up of various operational costs and administrative expenses.
How are ETF fees charged?
These are not deducted or withdrawn directly from the investor's account. Instead, the ETF fees are taken from the fund's assets (net asset value (NAV)) by the fund provider (Vanguard and BlackRock in our case) before they are included in the investor's assets.
For example, let's assume than an ETF fee is 0.1% per annum. Therefore, on an investment of $10,000, the expected expense to be paid over the course of the year is $10.00. If the ETF returned precisely 0% for the year, the investor would slowly see their $10,000 move to a value of $9,990 over the course of the year. For an overview of our ETF portfolios and ETF fees, please review here.
Why is this important?
The size of the expense ratio is important to investors, as the costs are withdrawn from the fund, affecting investors' returns. For example, if a fund generates a return of 7% for the year but has an expense ratio of 4%, the 7% gain is greatly diminished to roughly 3%.
At Sarwa we focus on low-cost and so the ETFs that we offer have ultra-low expense ratios, starting at just 0.03% per year!