ETF 101: ETF Expense Ratio

The ETF arena now has so many investment options, that many areas in the market have become over-represented as more and more issuers come out with very similar looking ETFs competing solely on the basis of price.

How Much Does Your ETF Really Cost? Let’s Discuss an Active ETF Expense Ratio vs. Index ETFs vs. Mutual Funds

Active ETF Expense Ratio Components:

1. Shareholder Fees 2. Management Fees 3. Distribution Fees 4. Other Expenses 5. Acquired Fund Fees And Expenses 6. Fee Waivers

You can find a detailed break-down of the expenses for an Active ETF in its prospectus.

Breaking Down an Active ETF Expense Ratio

Below is a snapshot of what the typical expense disclosure looks like:

This component consists of a sales charge imposed on purchases that gets taken out from your initial investment and the second component is the transaction fees on purchases or redemptions.

1. Shareholder Fees

This is the fee that gets paid to the manager of the fund who makes the investment decisions for the fund on a day-to-day basis.

2. Management Fees

3. Distribution Fees

12b-1 fees for mutual funds are paid by the fund out of fund assets to cover distribution expenses and sometimes shareholder service expenses.

4. Other Expenses

These include expenses such as the custodian fees, recordkeeping fees, unit-holder communication costs, legal and audit fees, as well as listing fees.

This means that they can implement their investment strategy by choosing to invest in other ETFs instead of individual securities. This also means that the fund will have to pay the expenses of the underlying ETFs.

5. Acquired Fund Fees And Expenses

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