How to calculate total TER of ETF portfolio

[Guest theshidoshi]

How to calculate total TER for an ETF portfolio

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

[samd_IG]

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

[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?

[samd_IG]

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)

 

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

[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