These fees are expressed as an annual percentage of the value of the fund.

**Exchange Traded Funds**(

**ETFs**) and

**Mutual Funds**normally use the term

**Management Expense Ratio**(

**MER**) to refer to these fees. Funds accessible via

**Group Plans**might refer to them as

**Fund Management Fees**(

**FMF**)

**or**

**Investment Management Fee**(

**IMF**).

Moving forward in this article I will be using the term

**MER**when referring to either of them. This is just a simplification and the reader must infer that the right terminology depends on the type of fund.

The

**MER**of a portfolio can be calculated by knowing the

**MERs**and

**allocation percentages**of the underlying funds. The formula below can be used for such purpose:

```
MER(P) = MER(F1) * A (F1) + MER(F2) * A (F2) + … MER(Fn) * A (Fn)
```

Where:

**P**is the portfolio.**F1**,**F2**, …**Fn**are the underlying funds of the portfolio; for a total of**n**underlying funds.**MER(P)**is the**MER**of the portfolio.**MER(Fn)**is the**MER**of fund**Fn**; with**n**=1, 2…,**n**.**A(Fn)**is the allocation target (in percentage) of fund**Fn**; with**n**=1, 2…,**n**. The sum of all allocation targets should be 100%. In other words,**A (F1) + A (F2) + …+ A (Fn) = 100%**.

For example:

Let’s consider a portfolio containing 7 underlying funds as in the table below:

Symbol |
Allocation |
MER |

VUN | 23.70% | 0.16% |

VAB | 23.60% | 0.13% |

VCN | 18.20% | 0.06% |

VIU | 13.80% | 0.23% |

VBG | 9.20% | 0.38% |

VBU | 7.20% | 0.22% |

VEE | 4.30% | 0.24% |

```
MER(P) = MER(VUN) * A(VUN) + MER(VAB) * A(VAB) + MER(VCN) * A(VCN) + MER(VIU) * A(VIU) + MER(VBG) * A(VBG) + MER(VBU) * A(VBU) + MER(VEE) * A(VEE)
```

MER(P) = 0.16%*23.70% + 0.13% * 23.60% + 0.06% * 18.20% + 0.23%*13.80% + 0.38% * 9.20% + 0.22% * 7.20% + 0.24% * 4.30%

MER(P) = 3.792%% + 3.068%% + 1.092%% + 3.174%% + 3.496%% + 1.584%% + 1.032%%

MER(P) = 17.238%%

MER(P) = 17.238 / 100 %

MER(P) = 0.17238%

MER(P) = ~0.17%

The

**MER**of the portfolio above is approximately**0.17%**. It resembles the underlying composition and allocation targets used in VBAL.
Conclusion: the

**MER**of a portfolio as a whole can be calculated by applying a simple formula that takes the**MERs**and**allocation targets**of each underlying fund as input. This calculation provides DYI investors with a way to assess how expensive a portfolio is.
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