Q: I am considering buying HXS but noticed the mer is .11% and the ter is .30% for a total of .41%. This seems huge, especially given other S&P 500 etf's like VFV have a ter of 0. Why is this?
5i Research Answer:
HXS uses derivatives to swap dividends for capital gains, with third parties (banks). This increases transaction costs overall. But, with no distributions, taxes shift from dividends to capital gains, and this is typically beneficial for many investors. With higher capital gains taxes the spread is narrowed, but for many investors the tax benefit is still worthwhile even with higher overall fees.