High management cost estimates
In particular, options for Canadians seeking exposure to Chinese equities are more expensive, even compared to mutual funds.
Take XCH for example, with its massive 0.86% management expense ratio (MER). The highly selective BMO MSCI China ESG Leaders Index ETF (ZCH) isn’t cheap, charging 0.67% MER. For a $10,000 investment, that’s $86 and $67 in annual fees, respectively.
Now compare this to Canadian equity ETFs, where fees can be as low as 0.05%, such as the TD Canadian Equity Index ETF (TTP). That’s just $5 a year on the same $10,000 investment.
MER is a constant drag on your performance, especially over the long term. It’s a wind you’ll feel year after year, so it’s worth aiming to keep it as low as possible.
Expensive trading costs
There is one Canadian Chinese equity ETF that I like: the CI ICBCCS S&P China 500 Index ETF (CHNA.B). With a low MER of 0.59%, that payout is still on the high side but remains competitive in this segment.
Unlike many peers, it holds stocks directly, avoiding the second layer of 15% US foreign holding tax. It also includes exposure to China A shares, which are domestically traded Chinese stocks generally inaccessible to foreign investors—a significant benefit.
However, one problem keeps me skeptical: the bid spread. As of December 5th, CHNA.B had a bid of $22.79 and an ask of $22.86, resulting in a spread of $0.07, or approximately 0.31%.
ETF liquidity is influenced not only by trading volume but also by the illiquidity of the underlying assets. That’s why large-cap Canadian and US equity ETFs tend to have tight spreads, even if volume is low—the underlying stocks are very liquid.
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