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There seems to be two news releases. One is regarding changes to investment strategies impacting the type of underlying securities the ETFs may hold
http://www.marketwired.com/press-re...-changes-to-certain-ishares-funds-1891824.htm

The second is a drop in MER for several ETFs
http://www.marketwired.com/press-re...-tsx-capped-composite-index-5-bps-1891815.htm

Notice they're using the words Management Fee which isn't the same as MER. For instance XIC's MER last year was 0.27%. So maybe add 0.02% onto this management fee to get the MER.

If I'm reading this right, then XIC now has an MER of around 0.07%. That's awfully good, wow. This is great news all around!
 

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This is great news!
I'm thinking of a couple of points, though. The cynic in me is wondering how much Vanguard's appearance had to do with this substantial decrease. Also, to be able to afford such a drop, Blackrock must have been making a healthy margin before.
 

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^^^

Are you sure that the S&P/TSX Capped Composite Index is similar enough for your liking to the FTSE Canada All Cap Index?

I haven't delved into it a lot but a quick check shows the S&P version being driven off of the largest Canadian companies, where the FTSE seems to be talking about a broader range (the Vanguard site talks about it using large/mid/small cap).

Then too, the S&P Index is capped at 15% whereas the FTSE is capping at 25%.


These may not matter to you but they appear to be significant differences.


Cheers
 

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So XIC is now the lowest MER fund in Canada?

XIC's MER is lower than XIU?
i'm suspecting that some of the Core funds are now containing derivative products such as futures & forward contracts, at least in part. It's these products that make an etf so ultra-cheap to run.

holding real shares costs real money!

i'll write more later, i'm in the middle of looking into this issue. Some fund families seem to be opaque, not transparently clear, about declaring whether they hold the actual stocks in certain ETFs or whether they are just holding an index future or proxy. I'll give an example later, so sorry to sound vague at this moment, still waiting on a bit of research.

one fund family that does a good job being transparent about its futures-&-derivatives portfolios, when these are the case, is Horizons BetaPro.

what i'm thinking might have happened with the rush to drop fees for XIC but not for XIU is that XIU is *the* institutional ETF par excellence. All the liquidity is in XIU. All the institutional option trading is on this fund. So i'm wondering whether the institutions said Nyet to your index futures, we want the full Monty of real common stocks in XIU, just the way we've always had it.

pension funds would be especially likely to take this route imho.
 

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humble I had the same initial thought as you, that it smells like derivatives and synthetic exposures are coming.

Keep in mind that first press release I posted is about changes to investment methodology. I didn't parse it in detail but it sound like they're saying, we may now use derivatives and other synthetic tricks to replicate the index.

Personally I strongly prefer an ETF that actually holds underlying stocks. I do not like derivative based ETFs.

Perhaps XIU is being kept pure (I hope) because institutions know the same thing I do, which is that pure equity exposure is superior.

The only way to know for sure is to wait for the audited financial statements... as I keep saying, you've got to read the annual financial statements to see what you REALLY hold. Personally I will only invest in ETFs that hold actual stocks. Plain vanilla.
 

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Do you guys have any shred of evidence that iShares ETFs hold derivative instruments? I would be extremely surprised if the popular iShares ETFs hold derivatives since iShares had been among those pushing for a different designation for products holding derivatives. I see the price drop as simply driven by competition.
 

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Yeah, this seems like a bit of a whisper campaign against the ETFs. I haven't seen any evidence that there has been any change to their use of derivatives in these funds.

CC, not only that, but it mirrors iShares US and their range of 'core' ETFs offered at low cost.
 

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I think this is the press release james mentioned. The bolded ETFs are also Core ETFs announced by iShares. XIC does not seem to be affected.

BlackRock Asset Management Canada Limited (“BlackRock Canada”), an indirect, wholly owned subsidiary of BlackRock, Inc. (NYSE:BLK), has determined to make certain changes to the investment strategy of iShares MSCI Brazil Index ETF (“XBZ”), iShares S&P Global Consumer Discretionary Index ETF (CAD-Hedged) (“XCD”), iShares China Index ETF (“XCH”), iShares J.P. Morgan USD Emerging Markets Bond Index ETF (CAD-Hedged) (“XEB”), iShares MSCI Emerging Markets IMI Index ETF (“XEC”), iShares MSCI EAFE IMI Index ETF (“XEF”), iShares MSCI Emerging Markets Index ETF (“XEM”), iShares S&P Global Industrials Index ETF (CAD-Hedged) (“XGI”), iShares Global Healthcare Index ETF (CAD-Hedged) (“XHC”), iShares India Index ETF (“XID”), iShares U.S. IG Corporate Bond Index ETF (CAD-Hedged) (“XIG”), iShares MSCI EAFE® Index ETF (CAD-Hedged) (“XIN”), iShares Latin America Index ETF (“XLA”), iShares MSCI EAFE Minimum Volatility Index ETF (“XMI”), iShares MSCI Emerging Markets Minimum Volatility Index ETF (“XMM”), iShares MSCI All Country World Minimum Volatility Index ETF (“XMW”), iShares S&P/TSX North American Preferred Stock Index ETF (CAD-Hedged) (“XPF”), iShares S&P 500 Index ETF (CAD-Hedged) (“XSP”), iShares U.S. Small Cap Index ETF (CAD-Hedged) (“XSU”), iShares S&P 500 Index ETF (“XUS”) and iShares MSCI World Index ETF (“XWD”).

The investment strategy of the above-noted iShares funds (the “iShares Funds”) will now allow an iShares Fund to invest in securities of one or more iShares exchange-traded funds managed by BlackRock Canada or an affiliate, and/or in index securities of the applicable index that the iShares Fund seeks to replicate, such that the resulting portfolio will have characteristics that closely match the char
acteristics of such index. The investment strategy of each of the iShares Funds was previously to invest primarily in shares of one or more U.S. iShares funds managed
by an affiliate of BlackRock Canada. The investment objective of each iShares Fund remains unchanged. BlackRock Canada expects that the new investment strategies outlined above will be effective March 24, 2014.
 

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I see the price drop as simply driven by competition.
but if that were the case, why didn't they drop the management fee for XIU? instead they left it at .17%. That's not competitive.

there has to be some other reason why they chose to make XIC & XIC alone dirt cheap, while leaving all-time popular giant XIU with a fee structure that now appears to be cripplingly high by comparison.

to partially answer your other questions, yes i do have "shreds." One "shred" is the damning structure of black rock's india fund in the US. Its symbol is INDY. Right there on the primary fact sheet the company presents a list of the top 10 holdings which are individual common stocks; elsewhere they list the 50 Indian companies whose shares this fund purportedly holds.

but the fact is neither INDY nor its canadian clone hold any of those shares. All that they hold is an India index, the CNX NIFTY, which trades on indian exchanges & also in singapore & on the chicago mercantle.

the reason is that india is still a country that does not permit foreign investors. Foreign parties holding Indian funds must use overseas traded index & index derivatives or else ADRs that trade stateside or in london or luxembourg. There may be other exchanges where some indian shares trade.

so i am saying to myself, If they can represent the indian fund as holding 50 indian shares when in reality it is holding zero indian shares, then they could apply the same unfortunate communication methodology to any of their funds ...

i'm with james4, i feel that the competitive race to lower MERs to drastically low levels in order to attract investing customers is producing creeping derivativism, as a cost-saver.

the puzzling thing is that these are all first-rate companies with very honourable reputations, so the fact that one can keep the true facts about its india fund buried so deep & so far out of the consumer's sight is a bit worrisome.

there's a sentence in yesterday's Black Rock press release that is fuzzy about the changes they are going to make in the funds. Second paragraph. "IShares Core Series is a suite of low-cost funds specifically designed ... combining competitive pricing with diversified products using established index providers."

i for one find this sentence to be opaque. It could mean that index providers are used as benchmarks. It could also mean that index providers are used, in some proxy or derivative form, as actual holdings.
 

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but if that were the case, why didn't they drop the management fee for XIU? instead they left it at .17%. That's not competitive.

there has to be some other reason why they chose to make XIC & XIC alone dirt cheap, while leaving all-time popular giant XIU with a fee structure that now appears to be cripplingly high by comparison.
Same reason why iShares decided to keep high-MER EFA and EEM and introduced new lower-priced ETFs that track the same markets. It's a business strategy for dealing with competitive pressures. In this case, their strategy is to reduce MER on a product that has much lower assets under management.

What "damning" structure? India does in fact allow foreign investments by institutional investors. Most institutions route their India investments through Mauritius to take advantage of favorable tax treatment. It looks like this fund does the same according to its prospectus here:

http://prospectus-express.newriver.com/summary.asp?clientid=isharesll&fundid=464289529&doctype=pros

But for the sake of argument let's say INDY does use derivatives to track the underlying index. So, if one ETF uses derivatives, all of them must use derivatives?

The Fund seeks to track the investment results of the CNX Nifty IndexTM (the “Underlying Index”), which measures the equity performance of the top 50 companies by free float market capitalization whose equity securities trade in the Indian securities markets. The Underlying Index may include large-, mid- or small-capitalization companies, and components primarily include consumer staples, energy, financials and technology companies. The components of the Underlying Index, and the degree to which these components represent certain industries, may change over time.The Fund carries out its investment strategies by investing substantially all of its assets in a wholly-owned subsidiary in the Republic of Mauritius (the “Subsidiary”). The remaining assets will be invested directly by the Fund. The Subsidiary and the Fund will collectively invest at least 80% of the Fund's total assets in securities that comprise the Underlying Index and in depositary receipts representing securities of the Underlying Index. Due to legislative developments in India, the Fund may choose to withdraw from the Subsidiary, which may increase the Fund's India tax expense. BFA will serve as investment adviser to both the Fund and the Subsidiary. Unless otherwise indicated, the term “Fund,” as used in this prospectus (the “Prospectus”), means the Fund and/or the Subsidiary, as applicable.

 

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Simple answer ...
XIU = $12,901,266,132
XIC = $1,361,557,808

in what way would the above be an answer?

it would make more sense to reduce the MER of the giant fund, not its small cousin. Nearly always, the bigger the assets under management, the easier it is to shave fees.
 
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