All posts by Jonathan Chevreau

Weekly wrap: ETFs pass hedge funds, stocks beat bonds but do Boomers own too many stocks?

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Interview Jan 2014
Deborah Fuhr, ETFGI LP

As The Economist reported this week, assets of exchange-traded funds (ETFs) have now surpassed those of hedge funds. In one of its “Leaders,” the British weekly described hedge funds as a “fatal distraction” for pension funds. It also ran a longer piece on the same story, saying ETFs are roaring ahead of hedge funds.

Back in 1999, ETFs had only 10% of the assets under management enjoyed by hedge funds. Today, according to research firm ETFGI LP of London, UK, assets in the global ETF industry were US$2.971 trillion (that’s Trillion with a T!), compared to US$2.969 trillion for hedge funds.  But of the $36 trillion (US$) invested in pension funds worldwide, only $3 trillion are in hedge funds. It noted that CalPERS, a huge US pension fund, has “concluded putting money in hedge funds is not worth the bother.”

I talked to ETFGI managing partner Deborah Fuhr (who left BlackRock four years ago) after the Economist article came out this week. She said the ETF industry likely became bigger than hedge funds back in May of 2015, when ETF assets reached US$3 trillion but as Hedge Fund Research only provides quarterly data rather than monthly, it could not be confirmed until now.

It’s a big milestone for ETFs but there’s still a long way to go before ETFs catch mutual funds. Fuhr says global ETFs have just 8.4% of the assets claimed by the mutual fund industry.

Stocks versus Bonds

Here at the Hub the past week we had a study in contrasts, with two financial expert/authors running guest blogs with quite disparate views on asset allocation. Continue Reading…

Weekly Wrap: High-flying tech stocks, dividends as contrarian play, best careers for Early Retirement

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Map of the Silicon Valley area of CaliforniaGood cover story in the current issue of the Economist on the technology boom and the Nasdaq composite index surpassing its previous all-time high early in the year 2000.

The magazine argues that while the tech boom may get bumpy, “it will not end in a repeat of the dot com crash.” Certainly, the past week was mostly positive for growth stocks like the four that make up the so-called “FANG” acronym: Facebook, Amazon, Netflix and Google.  Amazon turning a profit: who knew?

True, none of the FANG stocks  pay dividends but the older tech giants that do,  like Apple, IBM and Microsoft, experienced haircuts this week.

Dividends now a contrarian play?

Continue Reading…

Expanded CPP may not increase retirement income: Fraser Institute

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cpp_image2As the Globe & Mail and Financial Post both  reported Tuesday, a new study by the Fraser Institute finds that an expansion of the Canada Pension Plan (CPP) may not raise incomes of retirees because people will save less on their own.

The report, which is to be released today, found that private savings fell as CPP contribution levels rose between 1986 and 2008. CPP contribution rates were 3.6% of earnings in 1986 (half from employers, half from employees) and rose to the current combined level of 9.9% by 2003.

Impact varies with income and age

The study found the impact of higher CPP contribution rates varies with income and age. So for households with annual income under $34,140, a one percentage-point increase in contribution rate resulted in a 1.56-percentage-point fall in private savings. But middle-income households earning up to $59,920 cut their savings by 0.72 percentage points: less than the full amount of the CPP increase. And high-income earners making over $59,920 were found to have almost no change in their saving rates as CPP rates rose.

The report’s co-author, Charles Lamman told the Globe that relatively few Canadians are under saving for retirement: mostly the elderly, widows and singles, and those without a work history that makes them eligible fort the CPP. So for those people, a CPP expansion would not be helpful.

The Financial Post version of the story can be found here. The Post also ran a piece by the report’s authors on its FP Comment page: Shifting Retirement Savings. You can also view a video commentary on the report on the Fraser Institute’s website, here.

Weekly Wrap: Horrendous market timers, Big Mac Index, NHLers defrauded by advisers

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Collage with flying euro clock in a hand on a background of sky and grass.A piece on market timing is a “must read” for anyone who takes market-timing gurus and newsletters overly seriously. Read A Visual History of Market Crash Predictions. (Note the reference embedded in the URL to “the clowns of Wall Street.”)

Yes, all the big fear-monger names are there, including Harry Dent Jr., Robert Prechter, Marc Faber and even a few Marketwatch columnists and the generally respected Mark Hulbert.

As the piece says, you need to remember that almost everyone has something to sell, and the pundits mentioned generally are in the business of selling newsletters, books, market-timing services or related items. And since Fear is a more visceral emotion than Greed, the scarier the headlines these prognostications generate, the more publicity the market prognosticators are likely to reap, and with that more sales of their products or services. As they say in the newspaper business, “If it bleeds, it leads.”

And admit it, would YOU buy a book bearing the calm and sensible title “Markets will fluctuate, stay diversified for the long run and have a sensible asset allocation?” A better title might be “Ignore these idiots.”

Reader reaction to Eternal Truths series

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The case for dividend ETFs

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Money tree with coins. EPS8 vector.Here is my monthly ETF column for the Financial Post, titled Jonathan Chevreau: Why Dividend Funds are a smart financial move.

The piece mentions several dividend ETFs from manufacturers like BMO, Vanguard and iShares but also presents the views of a few ETF specialists who are not as enthusiastic about these products.

Well suited to TFSAs

Personally, I think Canadian dividend funds are particularly well suited to Tax-Free Savings Accounts: they’re diversified, provide dividend income, have reasonable fees and don’t result in any withholding of tax that may occur with foreign dividend ETFs. The latter are better held in RRSPs, in my view.

Of course, those who are cautious about the stock market will prefer to stuff registered plans with fixed-income vehicles like GICs and put their dividend ETFs into non-registered (taxable) accounts that let Canadians benefit from the dividend tax credit.

The case for being “an owner, not a loaner” was made by me in the fifth “Eternal Truth” of Personal Finance in the recent series that ran in the Post, both online and in the paper. You can find that piece as well as a short (1-minute) video under the headline Embrace Risk, Pay Less Tax. You can find the whole series here. Continue Reading…