TER: The Trading Expense Ra... - InvestisseurAutonome
TER: The Trading Expense Ra... - InvestisseurAutonome
TER: The Trading Expense Ra... - InvestisseurAutonome
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<strong>TER</strong>: <strong>The</strong> <strong>Trading</strong> <strong>Expense</strong> <strong>Ra</strong>tio or Total <strong>Expense</strong> <strong>Ra</strong>tio? | WhereDoesA...<br />
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1 of 8 2010-08-23 11:51<br />
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March 23, 2010 by Preet 6 Comments<br />
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By now, most people have heard of the MER (Management <strong>Expense</strong> <strong>Ra</strong>tio) in mutual funds and ETFs.<br />
Another term that gets bandied about is the <strong>TER</strong>, which is less well known and has a few different meanings<br />
depending on which country you are in.<br />
When you look at a Canadian fund’s MRFP (Management’s Report on Fund Performance), it is now required<br />
to show the <strong>Trading</strong> expense ratio of the fund which represents the amount of trading commissions incurred<br />
to manage the portfolio as a percentage of the total assets of the fund. For example, if you had a $100 million<br />
fund and the trading commissions for the year incurred by the fund manager to manage the portfolio was $1<br />
million then the <strong>Trading</strong> expense ratio is 1%. This is NOT reflected in the MER. Funds with higher portfolio
<strong>TER</strong>: <strong>The</strong> <strong>Trading</strong> <strong>Expense</strong> <strong>Ra</strong>tio or Total <strong>Expense</strong> <strong>Ra</strong>tio? | WhereDoesA...<br />
http://wheredoesallmymoneygo.com/ter-the-trading-expense-ratio-or-total...<br />
2 of 8 2010-08-23 11:51<br />
turnover rates (meaning the manager buys and sells more often) or funds that invest in less liquid securities<br />
(like micro-caps for example) will have higher <strong>Trading</strong> expense ratios. Funds with low turnover and that<br />
invest in larger-cap names will have lower <strong>Trading</strong> expense ratios. Here is a screen-shot of an MRFP report<br />
which shows where you can find the Canadian <strong>TER</strong>:<br />
In this case, you can see that the <strong>TER</strong> is 0.73%. If you add this to the fund’s MER of 2.46% you will get a<br />
truer sense of the total costs to run this fun.<br />
Now to really throw a wrench into things: <strong>TER</strong> as the Total <strong>Expense</strong> <strong>Ra</strong>tio means different things based on<br />
what country you are in. In the UK, the Total <strong>Expense</strong> <strong>Ra</strong>tio is the same thing as the MER in North America.<br />
But in the US (predominantly) the Total <strong>Expense</strong> <strong>Ra</strong>tio is the MER + <strong>Trading</strong> Costs.<br />
Here’s a little breakdown…<br />
In the UK the <strong>TER</strong> stands for Total <strong>Expense</strong> <strong>Ra</strong>tio and is equal to the US or Canadian definition of MER<br />
In Canada the <strong>TER</strong> stands for <strong>Trading</strong> <strong>Expense</strong> <strong>Ra</strong>tio which is the cost of commissions paid in the fund as a<br />
percentage of the fund’s total assets.<br />
In the US, <strong>TER</strong> stands for Total <strong>Expense</strong> <strong>Ra</strong>tio and is equal to the US or Canadian MER + <strong>Trading</strong> <strong>Expense</strong><br />
<strong>Ra</strong>tio.<br />
Yeah, I know.<br />
Related posts:<br />
1.<br />
2.<br />
3.<br />
<strong>The</strong> P/E <strong>Ra</strong>tio Part 4<br />
<strong>The</strong> P/E <strong>Ra</strong>tio<br />
Mutual Funds: Great for portfolios up to $100,000
<strong>TER</strong>: <strong>The</strong> <strong>Trading</strong> <strong>Expense</strong> <strong>Ra</strong>tio or Total <strong>Expense</strong> <strong>Ra</strong>tio? | WhereDoesA...<br />
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About Preet<br />
Preet Banerjee, B.Sc., FMA, DMS, FCSI is the W Network's Money Expert. He is a former stockbroker and<br />
financial planner. Prior to that, he was a racecar driver, and before that he trained to be a neuroscientist.<br />
Basically, he can't hold down a job for very long.<br />
Comments<br />
1.<br />
Patrick says:<br />
March 23, 2010 at 10:15 am<br />
To me, the US one obviously makes the most sense. You define a thing called “Total <strong>Expense</strong> <strong>Ra</strong>tio”<br />
and then gradually legislate away deviousness by requiring more things to be reported in there. I like<br />
that model. At any given time, the <strong>TER</strong> would be the truest picture of expenses according to<br />
then-current laws.<br />
<strong>The</strong> Canadian one is a stop-gap: what happens when another major unreported expense is encountered?<br />
(Defaults from securities lending perhaps?)<br />
Reply<br />
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<strong>TER</strong>: <strong>The</strong> <strong>Trading</strong> <strong>Expense</strong> <strong>Ra</strong>tio or Total <strong>Expense</strong> <strong>Ra</strong>tio? | WhereDoesA...<br />
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