MER of an ETF that holds another ETF?

Question

I have an ETF: VFV (VANGUARD S&P 500 INDEX ETF) that has a fee of 0.08%. This ETF is traded in Canada and holds the U.S.-domiciled Vanguard S&P 500 ETF: VOO. This fund has a fee of 0.03%.

My question is would this structure make my total fee be more than the 0.08% that was specified?

Answer 1

No, your MER on VFV is 0.08% the reason why it’s higher than the 0.03% is that if you held the underlying asset VOO you would be subject to foreign withholding fees.

You can actually use this to your advantage though by buying VOO in your RRSP (which allows you to waive the foreign withholding fees because it’s a retirement account) and holding VFV in your TFSA/non-registered investment accounts.

Answer 2

This is actually noted in the fact sheet for the fund:

• The management fee is equal to the fee paid by the Vanguard fund to Vanguard Investments Canada Inc., and does not include applicable taxes or other fees and expenses of the Vanguard fund. This Vanguard fund invests in underlying Vanguard fund(s) and there shall be no duplication of management fees chargeable in connection with the Vanguard fund and its investment in the Vanguard fund(s).

See here: https://www.vanguardcanada.ca/advisors/products/documents/550/CA