All posts by Jonathan Chevreau

MoneySense Retired Money: How safe are REITs and REIT ETFs during the Covid recovery period?

Posted By |
MoneySense.ca: Photo by energepic.com from Pexels

My latest MoneySense Retired Money column has just been published: it looks at how much real estate should make up of an investment portfolio, either through direct ownership in physical real estate, or through more diversified REITs or REIT ETFs. Click on the highlighted headline for the full column: How much real estate should you have in a balanced portfolio? 

How much should real estate comprise in a balanced portfolio? While a principal residence certainly will be a big part of most people’s net worth, personally I don’t “count” it as part of my investment portfolio, even though it can ultimately serve as a retirement asset of last resort, via Home Equity Line of Credits (HELOCs), reverse mortgages or simply an outright sale when it’s time to enter a retirement or nursing home.

If you take that approach, and many of my advisor sources do, then the question becomes how much real estate should you have in your investment portfolio, above and beyond the roof over your head?

Certainly, if you are happy being a landlord and handy about home maintenance, direct ownership of rental apartments, duplexes or triplexes and the like is a time-honored route to building wealth. That’s the focus of organizations like the Real Estate Investment Network (REIN).

However, if you don’t want the hassle of being a landlord, you may want to try Real Estate Investment Trusts (REITs), which are far more diversified both geographically and by housing type. Some REITs focus on baskets in particular real estate sectors, such as residential apartments or retirement homes.

A still more diversified approach is to buy ETFs providing exposure to multiple major REIT categories, whether Canadian, US or international.

Adrian Mastracci, portfolio manager with Vancouver-based Lycos Wealth Management, says the REIT idea “makes sense” but suggests they should not make up more than 5 or 10% of an investor’s total wealth or not more than 7% of an equity portfolio. “I consider it part of the equity bucket. Publicly traded REITS trade more like equities than real estate.” He advises buying top-quality REITs (or ETFs holding them), diversified across Canada but avoids foreign ETFs because “you want the dividends taxed as Canadian dividends.”

Most of the major ETF suppliers with a Canadian presence have broad-based passively managed REITs although there is at least one actively managed one.

Major passive and active Canadian REIT ETFs

The Vanguard FTSE Canadian Capped REIT Index ETF (ticker VRE/TSX) was launched in 2012 and has a modest MER of 0.39%.  As the name implies, any one holding is capped at 25% of the total portfolio [typically this is RioCan.] Its mix is 22% retail REITs, 19.8% office REITs, 18.5% real estate services, 18.5% residential REITs, 8.5% industrial REITs, 8.1% diversified REITs and 4.6% real estate holding and development.

An alternative is XRE, the iShares S&P/TSX Capped REIT Index ETF, trading on the launched in 2020, which holds roughly 16 Canadian REITs, with weightings almost identical to VRE. The iShares product (from BlackRock Canada) has a slightly higher MER of 0.61%. Continue Reading…

Gold still trusted over Bitcoin, but gap is closing

Posted By |

A report by LendEDU finds Bitcoin is making a lot of headway with investors over Gold. 56% said Bitcoin is a better investment to maximize profits, versus just 33% for gold. However, they still see gold as a better store of value against inflation, with 50% answering gold  (including 67% over the age of 54), and 39% saying bitcoin.

On behalf of New Jersey-based LendEDU, research firm Pollfish surveyed 1,000 Americans on April 21st to see how they would deploy an initial US$50,000 to build a retirement nest egg, and found gold only had a slight edge: 45% versus 42% for bitcoin. However, if the goal of the $50,000 investment is strictly to maximize profits, 49% specified bitcoin, versus just 37% for gold.

LendEDU Director of Communications Mike Brown says Bitcoin is up roughly 68,189,500% since its start in 2009, while gold is up 105% over the same period.

“Gold is proven as a reliable investment and safe haven against market volatility and inflation, which is especially relevant in 2021. Bitcoin is becoming a competitor for just the same thing, although its wild price fluctuations are not for the faint-hearted and attract a younger, more aggressive investor … We found gold is still trusted for more cautious investing, especially amongst older Americans, but bitcoin is closing that gap and is preferred for speculative investing, especially with the younger crowd.”

LendEDU’s Mike Brown

Brown says the survey results were “none too surprising; bitcoin has periods of monumental gain that make it a salivating buy for aggressive investors trying to make a profit. But it also has periods of monumental loss and faces constant regulatory and institutional scrutiny that make it a questionable buy if your first investment priority is protecting the money you already have.”

Gold, on the other hand, doesn’t have eye-popping surges like bitcoin but is safe and has historically delivered steady profits to the patient investor looking for a financial safe haven.

The survey reveals a younger bias towards bitcoin and an older population favoring gold. Thus, 56% of those between the ages of 18 and 24 thought bitcoin was the better speculative asset, while 29% thought gold was. The percentages were 29% and 55%, respectively, for poll participants over 54.

Similarly, 42% of the 18 – 24 cohort thought bitcoin was a better store of value to protect against inflation, while 44% said gold. For the over 54 cohort, those percentages were 16% and 67%, respectively.

Brown found the 35-44 age group surprising as they were quite bullish on bitcoin in all four questions and broke with the normal trend that had older respondents favoring gold and younger ones opting for bitcoin. “This could be due to this demographic getting in on bitcoin in the extremely early stages, around 2010 when they were in their mid-twenties or early-thirties.”

When asked if they have invested in bitcoin or gold recently amid concerns about inflation, 15% had invested in gold, 31% in bitcoin, 15% in both, and 36% in neither.

For retirement investing, gold still holds a dwindling edge

In another part of the survey, poll participants were given four increasing monetary values and asked if they would rather invest each value in either bitcoin or gold to build a retirement nest egg that they couldn’t touch until retirement. In nearly every scenario, gold was the preferred retirement investment choice over bitcoin. Only when $1,000 was the starting amount did more respondents (47%) want to invest in bitcoin over gold (43%).

But as the starting amount went up, so too did the risk, which is likely why respondents switched over to the less-risky, less-volatile gold to start building their retirement nest eggs as the questions progressed. As Brown notes, “Retirement accounts should be stable, and you’ll lose a lot less sleep investing $50,000 in gold instead of $50,000 in bitcoin.”

Even so, no matter the initial investment amount, most age groups preferred building their retirement nest egg through bitcoin rather than gold. For example, 46% of the 45-54 cohort wanted to invest $50,000 in bitcoin compared to 41% who said gold. Continue Reading…

Spendapalooza 2021: Ottawa unveils first Federal Budget in two years

Posted By |
CTVNews.ca

The first Federal Budget in more than two years was unveiled shortly after 4 pm Monday. You can get the official documents [all 724 pages of it, with the heft of a big-city telephone book] from the Department of Finance here.

It sports the title A Recovery Plan for Jobs, Growth, and Resilience. 

The last federal budget [“Investing in the Middle Class”] came down on March 19, 2019.

You can find the latest Budget tweets and post-announcement reaction under the hashtag #Budget2021, and on my Twitter feed @JonChevreau, which also scrolls on the right of this site. Minister of Finance Chrystia Freeland tweets as @cafreeland. Earlier Monday she tweeted that “we will finish the fight against COVID-19 and invest in job creation and a resilient economy.”

Here is the initial analysis from the Globe & Mail [possibly subscribers only]; personal finance columnist Rob Carrick focused on the childcare initiative.  Also at the G&M, David Rosenberg rightly construed it as a vote-buying multi-year massive spending binge that Canada is unlikely to afford.

Here is what the National Post has to say; William Watson’s take is here; I love this quote from him: “In terms of taxes, however, ‘over-threaten and under-deliver’ summarizes this budget.” Terry Corcoran characterized it as Canada’s Reverse Perestroika with a shift to centralized planning. Jack Mintz lamented the lack of fiscal anchors to hold back the Liberals. Diane Francis warned the pandemic spending spree is nowhere near being over, thanks to Justin Trudeau’s bungling of the pandemic. Finally, CIBC Wealth’s Jamie Golombek looks at five tax-related measures, notably the three replacements for the original CERB.

Here is the Reuters feed. One focus of the Toronto Star was an extra billion dollars devoted to Broadband infrastructure in rural communities.

Federal Minister of Finance and Deputy Prime Minister Chrystia Freeland. (Twitter.com)

Billed as a post-pandemic Budget, it lived up to the prerelease leaks of a spending marathon the past week. In short it is Justin Trudeau’s pre-election Spendapalooza 2021. More than $100 billion in spending over 3 years was unleashed, including $30 billion over 5 years and $8.3 billion a year thereafter for the centrepiece of it all: a National Childcare and Early Learning Program.

No real help to cool Housing Bubble and other measures that didn’t happen

As interesting as what was announced is what many feared might be announced and didn’t happen. As far as I can see at this point, there was no move to end the tax-free gains of a principal residence, nor did I see any changes in capital gains tax inclusion rates on investments in general. As Watson quipped about taxes, “Overthreaten and underdeliver.”

Also in the category of things we’re glad not to see is, as Global News summarized, no hike to the GST and no imposition of a Universal Basic Income, no broad-brush Wealth Tax [but new taxes on expensive cars, boats and planes] and no increases in Health Transfers to the provinces. There wasn’t even significant help to cool runaway housing markets, apart from a tax on vacant or underused residential property owned by non-residents: as reported by Robyn Urback in the G&M.

Nor was there much about Pharmacare, to the dismay of the NDP.

Apart from that there was billions for everybody. As Andrew Coyne wrote in the G&M, the budget had to be the longest in history because “this budget is about everything.”  He notes that the word “support” appears almost 1,000 times, and benefit/s more than 1,300 times.

OAS sweetener for 3.3 million seniors

A $500 one-time Old Age Security payment for seniors 75 or older [as of June 2022] is coming in August, followed by a 10% rise in regular OAS benefits in July 2022. Continue Reading…

Purpose cleared to launch world’s first Ether ETF

Posted By |

The MoneySense ETF All Stars 2021

Posted By |

 

MoneySense has just published the 9th edition of the ETF All Stars, 2021 edition. As you can read in the  overview, this amounts to the Pandemic Recovery edition. The full package is available online here. Below we summarize the main picks by category: click on the highlighted headline [in red] for each category to go to the full MoneySense commentary as well as the accompanying charts showing ETF names, ticker symbols, fees and general description.

We again had eight panelists: the same as last year, except that regular Hub contributor Mark Seed of My Own Advisor replaced departing Dave Nugent. The format consists of the eight experts “voting” on which funds to retain and which to replace, with five out of eight votes carrying the day. (I get involved only if there is a 4-4 tie.)

Since our philosophy is to retain as many earlier picks as possible — provided they still meet our criteria of broad diversification and low cost — we ended up with 52 picks this year, just two more than in 2020: 44 selections were agreed-upon winners, plus there were 8 Desert Island picks (see below).

However, there were more new additions than that might suggest, since we also dropped a few ETFs from last year, notably in the ESG and Low Volatility categories.

Canadian Equities

All five Canadian equity ETFs return: VCN, XIC, HXT, ZCN and ZLB (see the chart at MoneySense for full ETF names). However, no new funds were added: We considered adding five new names but none attracted the five-vote majority necessary.

Remember that Canadian stocks are also amply represented in the One-Decision Asset Allocation ETFs discussed below.

US equities

The panel opted to retain all seven of our 2020 U.S.-equity ETF picks, while (finally!) adding two technology ETFs and a Vanguard all-cap total market fund (VUN), for a total of ten. That makes for a crowded category but after all the US is the biggest single geographic market in the world and investors have certainly been rewarded for being there in recent years: especially in 2020.

Returning picks are XUU, iShares’ US Total Market ETF; and three low-cost plays on the S&P500 index: VFV and VSP from Vanguard, and BMO’s ZSP. There was also the returning Desert Island pick from PWL’s Cameron Passmore: Avantis US Small Cap Value ETF [AVUV.]

International and Global equities

The panel retained six of the eight international or global ETF All-stars from 2020: two from iShares (XAW and XEF), three from Vanguard (VXC, VEE and VIU) and BMO’s low-volatility pick ZLI. Two other new picks introduced in the 2020 edition didn’t make the cut this time: iShares Edge MSCI Min Vol Global Index ETF (XMW, 0.48%), and CI First Asset MSCI World Low Risk Weighted ETF (Unhedged, ticker: RWW/B).  There was also a new international Desert Island pick from PWL’s Ben Felix: Avantis International Small Cap Index Fund (AVDV).

Fixed Income

While our panel as a whole continues to take a “stay with the program” approach to its fixed-income All-Star picks, we did cut back slightly on the number of Bond ETFs this year.  Only six of the eight previous fixed-income All-star picks returned: ZAG, VAB, VSB, ZDB, XSB and VGAB. One added last year, TLT, did not return, and long-time pick BXF also did not make the cut in 2021. Continue Reading…