Counting the Cost
With ETP expenses, there's more than meets the eye: It's time to look beyond TER.
In many areas of the market, there are both ETFs and mutual funds tracking the exact same index. Choosing one over the other comes down to prioritizing what matters to you. Let’s review the fundamental difference between the two structures.
ETFs are often lauded for their low cost relative to mutual funds and other investment products. Still, investors should always consider the total costs involved in ETFs before making an investment. It could mean the difference between a great investment and a sour surprise
The total expense ratio (TER) of an ETF is a headline price, often used to compare different funds tracking the same index or section of the market to determine which one is more efficient. The TER is a useful measure of cost, but it doesn’t tell the full story, and it’s important to understand why.
How do you know if an ETF is doing its job well? The simplest answer is “tracking difference”. Tracking difference is investors’ metric for assessing whether they’re getting what they pay for. As such, it’s one of the most important ETP statistics to consider.