Total cost of ownership (TCO) is a measure of the cost of investing in an exchange traded fund (ETF) over a period of time. It is viewed by some ETF providers as a more comprehensive indicator of an ETF’s cost than its total expense ratio (TER).
TCO can be quite difficult to calculate, especially the external costs which can vary significantly. An alternative way of calculating TCO is by combining the 12-month tracking difference of an ETF with the costs of buying the ETF itself.
This will show an investor how much their ETF has underperformed its benchmark in the past 12 months, whilst also considering trading costs. By looking at this figure, an investor should be able to get a more accurate understanding of the costs which will have been paid.
