All posts by Jonathan Chevreau

Kornel Szrejber’s Podcast interview with me and PWL’s Ben Felix about the 2021 MoneySense ETF All-Stars

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An interesting analysis of the annual MoneySense ETF All-stars feature is now available on a one-hour podcast interview hosted by BuildWealthCanada.ca’s Kornel Szrejber, with myself and PWL Capital’s Ben Felix. Click on this highlighted text for the full session: The Best ETFs in Canada for 2021.

Initially, the interview is audio-only, available through iTunes and the usual podcast services. Later there will be a version that also shows video.

The full 2021 edition of the ETF all-stars can be found here at the MoneySense site, and the Hub’s summary here. The feature appeared early in April.

There are various links to the ETFs, including the ticker symbols (most of them trading on the TSX).

Kornel Szrejber

After kind introductions of both me and Ben Felix, both of us then added a few more details about our careers before Kornel started the formal interview. He did so by asking about the general philosophy behind the All-Stars and the mechanics of how we got eight ETF experts to agree on designating roughly 50 ETFs (from a universe of near a thousand) as ETF All-Stars.

The philosophy underlying the All-stars

As I explain in the MoneySense overview, the feature – now in its 8th year – aims to help individual investors (with or without the assistance of advisors) whittle down the overwhelming choice of ETFs now on the market. The goal has never been to whipsaw investors with change for the sake of change, but rather we strive to pick “buy and hold” broadly diversified low-cost ETFs that can be held over the years and ideally the decades.

Except for the individual “Desert Island Picks” (see below), generally the idea has been to avoid flavor-of-the-month theme funds or regional equity ETFs too narrowly focused on single countries (apart from Canada and the US). As a result, we try to keep the list to a manageable number that don’t necessarily change with every passing year. Of course, once in a while there is a “game-changer” that requires a revamp: the Asset Allocation ETFs from Vanguard Canada and subsequently its major competitors being the best example.

We also assume our readers are probably not day traders but looking for low-cost manageable portfolios that might be tweaked annually but likely won’t welcome a total revamp of their investments every year. We assume some are DIY investors buying them from discount brokerages, some have full-service advisors (including shops like PWL Capital), and some are hybrid investors who largely invest on their own but like to validate their approach through perhaps a fee-only advisor.

How the panel “votes” 

As for the mechanics of choosing the ETFs, as I tell Kornel, the eight expert panelists simply debate by email or Slack and “vote” on a spreadsheet. We have four teams of two each and once each team agrees, we try and find a consensus among the four teams. So 5 out of 8 votes would carry the day: I myself don’t vote unless there is a 4-4 tie and the tie needs to be broken.

After the introductory chat, there is a brief interlude where Kornel describes his own personal transition to financial independence and semi-retirement, and addresses his own personal ETF picks, and why he holds his emergency cash with EQ Bank (as does our family). Continue Reading…

63% neglected Retirement saving during Covid; study sees urgent need for Workplace pensions

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Over the course of the Covid pandemic the past year, almost two thirds of Canadians (63%) did not put aside anything for retirement, up from 58% last year, according to a study being released today.

That’s according to the third annual Canadian Retirement Survey from Healthcare of Ontario Pension Plan (HOOPP) and Abacus Data.

Not surprisingly, the survey also found a widespread belief that better access to workplace pensions is needed to avoid a retirement crisis.

The findings, based on an April 2021 survey of 2,500 Canadians, affirm there is a high level of anxiety about ability to save for retirement. Half (48%) said they are “very concerned” about not having enough money in retirement. That was more than the concern for one’s own physical health (44%), mental health (40%), debt load (31%) and job security (26%).  Only the daily cost of living was a greater concern than Retirement.

Steven McCormick, hoopp.com

“After more than a year of COVID-19, Canadians remain steadfast in their personal and societal concerns around retirement security,” said Steven McCormick, SVP, Plan Operations, HOOPP in a press release [pictured on right]. “As day-to-day financial pressures mount for some and ease for others, Canadians across the board are acutely aware of the importance, and challenge, of saving for retirement.”

While 46% of Canadians said they saved more money during COVID than they otherwise would have, more than half (52%) set aside nothing for retirement during the past year. Of those who said they saved less than usual, 72% saved nothing for retirement.

McCormick added: “HOOPP is proud to do its part by providing retirement security to healthcare workers, many of whom fall into groups that often don’t have access to pensions, such as women, part-time workers and younger Canadians. For our membership, the impacts of this pandemic will continue to be felt even after we emerge from the immediate crisis; but they can take some comfort in knowing their pension is secure.”

Covid disproportionately hurt finances of younger low-income groups

The COVID-19 pandemic harmed the finances of half of Canadians (52%) and did so disproportionately amongst younger and lower-income groups. Those aged 44 and younger are twice as likely to have had their finances greatly harmed (24%) than those 60+ (11%). Likewise, those earning less than $50,000 are twice as likely to have had their finances greatly harmed (25%) than those earning $100,000+ (12%). Continue Reading…

Retired Money: Has Purpose uncorked the next Retirement income game changer?

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Purpose Investments: www.retirewithlongevity.com/

My latest MoneySense Retired Money column has just been published: you can find the full version by clicking on this highlighted text: Is the Longevity Pension Fund a cure for Retirement Income Worries? 

The topic is last Tuesday’s announcement by Purpose Investments of its new Longevity Pension Fund (LPF). In the column retired actuary Malcolm Hamilton describes LPF as “partly variable annuity, part tontine and part Mutual Fund.”

We described tontines in this MoneySense piece three years ago. Milevsky wasn’t available for comment but his colleague Alexandra Macqueen does offer her insights in the column.

The initial publicity splash as far as I know came early last week with this column from the Globe & Mail’s Rob Carrick, and fellow MoneySense columnist Dale Roberts in his Cutthecrapinvesting blog: Canadian retirees get a massive raise thanks to the Purpose Longevity Fund. Dale kindly granted permission for that to be republished soon after on the Hub. There Roberts described the LPF as a game changer, a moniker the Canadian personal finance blogger community last used to describe Vanguard’s Asset Allocation ETFs. Also at the G&M, Ian McGugan filed Money for life: The pros and cons of the Purpose Longevity Pension Fund, which may be restricted to Globe subscribers.

A mix of variable annuity, tontine, mutual fund and ETFs

So what exactly is this mysterious vehicle? While technically a mutual fund, the underlying investments are in a mix of Purpose ETFs, and the overall mix is not unlike some of the more aggressive Asset Allocation ETFs or indeed Vanguard’s subsequent VRIF: Vanguard Retirement Income Portfolio. The latter “targets” (but like Purpose, does not guarantee) a 4% annual return.

The asset mix is a fairly aggressive 47% stocks, 38% fixed income and 15% alternative investments that include gold and a real assets fund, according to the Purpose brochure. The geographic mix is 25% Canada, 60% United States, 9% international and 6% Emerging Markets.

There are two main classes of fund: an Accumulation Class for those under 65 who are  still saving for retirement; and a Decumulation class for those 65 and older. There is a tax-free rollover from Accumulation to Decumulation class.

There are four Decumulation cohorts in three-year spans for those born 1945 to 1947, 1948 to 1950, 1951 to 1953 and 1954 to 1956. Depending on the class of fund (A or F),  management fees are either 1.1% or 0.6%. [Advisors may receive trailer commissions.] There will also be a D series for self-directed investors.

Initial distribution rates for purchases made in 2021 range from 5.65% to 6.15% for the youngest cohort, rising to 6.4 to 6.5% for the second youngest, 6.4% to 6.9% for the second oldest, and 6.9% to 7.4% for the oldest cohort.

Note that in the MoneySense column, Malcolm Hamilton provides the following caution about how to interpret those seemingly tantalizing 6% (or so) returns: “The 6.15% target distribution should not be confused with a 6.15% rate of return … The targeted return is approximately 3.5% net of fees. Consequently approximately 50% of the distribution is expected to be return of capital. People should not imagine that they are earning 6.15%; a 3.5% net return is quite attractive in this environment. Of course, there is no guarantee that you will earn the 3.5%.”

Full details of the LPF can be found in the MoneySense column and at the Purpose website.

Invesco Canada launches two new Thematic Technology ETFs focused on Nasdaq

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After the huge success of Cathie Woods and the ARK ETFs in 2020, rival investment managers have been quick to characterize technology funds as “Innovation” or “Disruption” products.

Such was the case on Thursday,  as Invesco Canada Ltd.  announced the launch of two new exchange-traded funds (ETFs) offering Canadian investors exposure to several relevant technology themes. This follows the February announcement from Franklin Templeton of the Franklin Innovation Fund (FINO), which appeared on the Hub under the headline Invest in Innovation, a Driver of Wealth Creation.

Both the words “Innovative” and “Disruptive” appear in the top of the press release for the debut of the Invesco NASDAQ Next Gen 100 Index ETF (QQJR and QQJR.F) and the Invesco NASDAQ 100 Equal Weight Index ETF (QQEQ and QQEQ.F. As the release says, these funds “build on the innovative solutions offered by Invesco and Nasdaq, allowing clients several distinctive entry points to own the disruptive companies listed on The Nasdaq Stock Market.”

Invesco also announced the launch of CAD Units of Invesco NASDAQ 100 Index ETF (QQC).

The Invesco innovation suite was launched in October 2020 and is just now expanding to Canada, with  the following TSX-listed ETFs that started trading on the TSX today (Thursday, May 27). Of the three below, I find the equal weight Nasdaq 100 offering the most interesting:

  • Invesco NASDAQ Next Gen 100 Index ETF (QQJR and QQJR.F)
  • Invesco NASDAQ 100 Equal Weight Index ETF (QQEQ and QQEQ.F).
  • Invesco NASDAQ 100 Index ETF (QQC and QQC.F)
Pat Chiefalo

The innovation play was also highlighted in the following quote attributed to Pat Chiefalo, Head of Canada, Invesco ETFs & Indexed Strategies: “The launch of two new Invesco Nasdaq ETFs reaffirms the commitment of Invesco’s Canadian ETF business to providing our clients with products that access the themes and companies at the forefront of innovation … Now Canadian investors can choose several unique ways to gain exposure to the category-defining companies listed on The Nasdaq Stock Market.”

There are of course several existing rival plays on the top 100 Nasdaq companies apart from Invesco’s famous QQQs. Incidentally, Invesco says it recently changed the name of the Invesco QQQ Index ETF to the Invesco NASDAQ 100 Index ETF, dropping the management fee to 0.20% of NAV to “make it the most cost-effective ETF in Canada tracking the Nasdaq 100 Index.”

By contrast, the new QQJR and QQJR.F are relatively unique: it tracks the Nasdaq Next Generation 100 Index, which includes the “next 100” non-financial companies listed on The Nasdaq Stock Market, outside of the Nasdaq 100 Index, in a mid-cap ETF. Continue Reading…

Retired Money: How Bond ETF investors can minimize risk of rising rates

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My latest MoneySense Retired Money column has just been published: click on the highlighted text to retrieve the full column: Should investors even bother with Bonds any more?

In a nutshell, once again pundits are fretting that interest rates have been so low for so long, that they inevitably must soon begin to rise. And if and when they do, because of the inverse relationship between bond prices and interest rates, any rise in rates may result in  capital losses in the value of the underlying bonds.

In practice, this means choosing (or switching) to bond ETFs with shorter maturities: the risk rises with funds with a lot of bonds maturing five years or more into the future, although of course as long as rates stay as they are or fall, that can be a good thing.

As the column shows, typical aggregate bond ETFs (like ETF All-Star VAB) and equivalents from iShares have suffered losses in the first quarter of 2021. Shorter-term bond ETFs that hold mostly bonds maturing in under five years have been hit less hard. This is one reason why in the US Vanguard Group just unveiled a new Ultra Short Bond ETF that focuses on bonds maturing mostly in two years or less.

The short-term actively managed bond ETF is called the Vanguard Ultra Short Bond ETF. It sports the ticker symbol VUSB, and invests primarily in bonds maturing in zero to two years. It’s considered low-risk, with an MER of 0.10%.

Of course, if you do that (and bear the currency risk involved, at least until Vanguard Canada unveils a C$ version), you may find it less stressful to keep your short-term cash reserves in actual cash, or daily interest savings account, or 1-year or 2-year GICs. None of these pay much but at least they don’t generate red ink, at least in nominal terms. Continue Reading…