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Buying China ETFs in Canada: Is it worth it?


High management expense ratios

By and large, the options for Canadians seeking Chinese equity exposure are prohibitively expensive, even compared to mutual funds. 

Take XCH for example, with its hefty 0.86% management expense ratio (MER). The more specialized BMO MSCI China ESG Leaders Index ETF (ZCH) isn’t much cheaper, charging a 0.67% MER. For a $10,000 investment, that’s $86 and $67 in annual fees, respectively.

Now compare this to Canadian equity ETFs, where fees can be as low as 0.05%, like the TD Canadian Equity Index ETF (TTP). That’s just $5 a year for the same $10,000 investment.

The MER is a consistent drag on your performance, especially over the long term. It’s a headwind you’ll feel year after year, so it’s worth aiming to keep it as low as possible.

Expensive trading costs

There’s one Canadian-listed Chinese equity ETF I want to like: the CI ICBCCS S&P China 500 Index ETF (CHNA.B). With a lower 0.59% MER, that fee is still on the high side but remains relatively competitive in this segment. 

Unlike many peers, it holds stocks directly, avoiding the second layer of 15% U.S. foreign withholding tax. It also includes exposure to China A-shares, which are domestically traded Chinese stocks typically inaccessible to foreign investors—a notable advantage.

However, one issue keeps me skeptical: the bid-ask spread. As of December 5, CHNA.B had a bid price of $22.79 and an ask price of $22.86, resulting in a spread of $0.07, or about 0.31%.

ETF liquidity is influenced not just by trading volume but also by the liquidity of the underlying assets. This is why large-cap Canadian and U.S. equity ETFs often have extremely tight spreads, even when volume is low—the underlying stocks are highly liquid. 



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