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How to calculate total TER of ETF portfolio


Guest theshidoshi

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Guest theshidoshi

How to calculate total TER for an ETF portfolio

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Hi guys

I am a new investor and as I have been learning about ETF portfolio structuring and key things such as keeping a low TER.

I am shifting my portfolio to ETF portfolio and I am not sure how to calculate an aggregate TER for the portfolio. I am not sure I am doing the total TER calculation for all 7 ETFs correctly.

Example of my ETF structure:

Percentage of holding - ETF - TER

  1. 40% in CSP1 TER 0.07%
  2. 20% in CUKX TER 0.07%
  3. 10% in IUKP TER 0.40%
  4. 10% in GBDV TER 0.45%
  5. 10% in SWDA TER 0.20%
  6. 5% in EMIM TER 0.18%
  7. 5% in SGLN TER 0.25%

 

Do I calculate it in the following way:

A) Sum of all 7 ETF TERs = 1.62%

B) Average of all 7 ETF TERs = 0.23%

C) Or more complex calculation considering the TER of each ETF in relation to its position size (e.g 40% in CSP1 with TER of 0.07% vs. 5% in EMIM with TER of 0.18% means its a lot cheaper than the simple addition of both TERs)

 

Any explanation with an example would be most helpful.

Thank you

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Hi @theshidoshi

The answer is C. You need to weight the TER of each ETF by its weight in your portfolio.

In Excel, if you had the weights in column A and TER’s in column B, you could use the SUMPRODUCT function to find the TER for your portfolio.

I’ve calculated this for you and I got a TER of 0.1685%. Let me know if you've got any other questions!

Kind regards,

Sam

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Guest theshidoshi
2 hours ago, samd_IG said:

Hi @theshidoshi

The answer is C. You need to weight the TER of each ETF by its weight in your portfolio.

In Excel, if you had the weights in column A and TER’s in column B, you could use the SUMPRODUCT function to find the TER for your portfolio.

I’ve calculated this for you and I got a TER of 0.1685%. Let me know if you've got any other questions!

Kind regards,

Sam

Thank you so much. I learnt a lot. I do have one question. My example above is the future weighting.

 

I tried it with my current portfolio I am trying to restructure and got a TER that is much much lower than I expected. I tested with our example above and ot worked but when applied to my current holdings it comes up with 0.05% which I find strange

 

Below is the ETF table (currently only 25% of my ISA portfolio)

Symbol - TER - Weighting

CSP1 0.07% 8.62%
CUKX 0.07% 3.99%
IUKP 0.40% 2.47%
EMIM 0.18% 1.02%
GBDV 0.45% 3.59%
SWDA 0.20% 3.18%
SGLN 0.25% 1.65%

 

I used the formula:

=SUMPRODUCT(A1:A7,B1:B7)

Answer 0.05%

 

How is that possible with such low TER?

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1 hour ago, theshidoshi said:

Below is the ETF table (currently only 25% of my ISA portfolio)

If you are just finding the TER for the portion of your portfolio that is invested in assets that have an annual expense then I would recommend either using weights for this part that sum to 100%, or to gross up the weights as shown in the screenshot below.

Both methods should get to the same answer, which I've calculated as 0.19% (2 d.p)

TER.PNG.0e438cb85d2164dfb59a2bd534fbafda.PNG

TER2.PNG.ff87db95403900d90e7cf13f70c0aaad.PNG

 

That should do the trick. Let me know if you've any other questions!

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  • 1 month later...
Guest theshidoshi

I just wanted to say thank you. This has worked for me beautifully now in Excel. I completely understand it.

 

Now I am learning how to do this in Python as it is a language I am trying to learn for Finance & Investing.

 

Many thanks

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