Recent sell – PowerShares ETF KBW High Dividend Yield

Wow. I think that is the only word I have for this. Two recent comments by TeamCF and Divnomics on the Portfolio section of this blog got me thinking. One was regarding why I invest in ETFs as opposed to individual companies in the first place. The main reason here is that I want to be diversified during the early stages of building my dividend income. I know perfectly well that the fees that these products charge are however a disadvantage to my goal. I actually thought I had a pretty good idea of what those fees were but yesterday evening I set out to make a list. The conclusion was that in the back of my mind I thought I was paying much less than what I actually do pay. A full list of the management fees of the funds I invest in will be published in my next post. For now, I want to share with you that the ETF with the highest annual fee has exited my portfolio today. The ETF is called ‘PowerShares ETF KBW High Dividend Yield‘ and the product carries the ISIN  US73936Q7934. One of the key product features of ETFs, at least as I see it, is that they are low cost trackers of an index. Do you want to know what PowerShares charges the investors in this tracker on annual basis? Are you sitting down?

On its website this product as an annual total expense ratio or TER of 3.08%!!! Hedge funds don’t dare charging such base fees. Unbelievable. I had a much lower number in mind for this product. Actually the fee data on the basis of which I bought this product is 0.35% and this number is still shown on the website as management fee. This is much more reasonable. However, it seems that the composition of the portfolio has changed since I last checked it. Somehow, the people responsible for this product have managed to add “Acquired Fund Fees & Expenses” to the tune of 2.73%. The little information icon on the website regarding this term tells me that this is “The fund’s pro rata portion of the cumulative expenses charged by the Underlying holdings in which the Fund invests.” So, as I see it, the index that this product is supposed to track all of a sudden includes other funds which have much higher management fees than the actual ETF that I invested in. I think this is as close to legalized day light robbery as I have seen it in recent years. Suffice to say that this product is OUT of my portfolio….

…. controlling my anger, I nevertheless wanted to know how I did, investing in this outrageously priced product. I bought 62 shares of this product in march 2015 for USD 25.56 each or a total of 1,585. Today, I sold those same 62 shares for USD 23.08 or a total of 1,431. Luckily, between those two transactions I received a monthly dividend stream worth a total USD 177. So cash out was 1,585 and cash in was 1,608. Counting transaction costs of USD 10 on each side, this investment has yielded a net cash inflow of about USD 3. Wow. Again. At this rate it is going to take a really long time before I will reach financial independence.   

 

Disclaimer: None of the content of this site is to be considered investment advice. Every reader has to form their own opinion about which investments are right for them and take full responsibility for their own actions.

3 thoughts on “Recent sell – PowerShares ETF KBW High Dividend Yield

  1. Wow indeed! Pretty amazing that they show a certain fee, but because of the structure of the fund they actually charge way more…

    We started with 2 trackers at the beginning of our portfolio (didn’t hold on for long) but never thought to check this kind of ‘hidden’ payments.

    ETF’s are not a bad investment, like DL mentioned. But this is definitely quite a shocker. Good that you sold out on it!

    Like

  2. Hi DIB,
    Wow – that’s outrageous! You did the right thing to get out of that. I see that the yield is very high on that ETF at 8%+; it’s certainly much higher than what I would be comfortable with as I don’t think those kind of percentages are sustainable. Or if they are, it’s because there’s some loss of capital somewhere.

    I think ETFs are fine as long as the costs are very low; there are hidden costs to individual stocks in the form of extra risk too which isn’t usually considered when comparing performance. I invest in both funds and individual stocks as I don’t see why I need to be 100% committed to any one investment strategy.

    Best wishes,
    -DL

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