Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

Franklin Templeton extends Canadian ETF family with Emerging Markets, Global Dividends

Posted By Jonathan Chevreau | January 30, 2018

As my latest Financial Post blog this morning explains, mutual fund giant Franklin Templeton Investments Canada has expanded its ETF lineup with a pair of new “Smart Beta” ETFs and an actively managed balanced ETF. Click on the highlighted text for full story: Franklin Templeton boosts Canadian ETF offerings with Emerging Markets play.

As I note in the piece, Franklin Templeton has long had an Emerging Markets mutual fund, famously managed until last year by globetrotting fund manager Mark Mobius, who retires on January 31^st after a 30-year career with the company. Franklin Templeton once had a closed end version of the fund but it was closed down in September of 2001, a company spokesman said.

The new Franklin LibertyQT Emerging Markets Index ETF (CAD) bears the memorable ticker symbol FLEM on the TSX, allowing Franklin Templeton to play catch-up to long-established Emerging Markets ETFs from rivals BlackRock Canada (iShares) and Vanguard Canada. You can find more about the new ETF family here.

FLEM is a four-factor “Smart Beta” ETF: the single biggest “factor” at 50% is a quality screen, along with 30% value, 10% momentum and 10% low volatility. Its largest single geographic weighting is South Korea at 15.4%, followed by 13.9% in China, 13% in India, 12.8% in Taiwan and 10.8% in Russia, according to Franklin Templeton vice president of ETF business development Amed Farooq.

The expected Management Expense Ratio (MER) for FLEM is 0.55%. The two other ETFs are The Franklin LibertyQT Global Dividend index ETF (FLGD/TSX, MER 0.45%) and an actively managed balanced ETF, Franklin Liberty Core Balanced ETF (FLBA/TSX), with an MER of 0.45%.

Time to “rebalance” from US equities to Emerging Markets?

Both the two new smart-beta ETFs provide a rebalancing opportunity for investors who feel US stocks have run up sufficiently to start taking profits. Earlier this month, famed investor Jeremy Grantham warned of one last market “meltup” for US stocks before another correction, and said his firm was rebalancing into Emerging Markets. You can find the full January 3rd article here: Bracing yourself for a possible near-term melt-up.

You can also find his comments made in a recent interview with Consuelo Mack’s WealthTrack show here.

I asked about this at the ceremonial opening of the TSX Monday morning, which focused on the ETF launches. Financial advisor John De Goey said he was doing just such a rebalancing for his clients and in an interview, Franklin Templeton senior vice president Dennis Tew said he knew of at least one advisor with a large book of business who likewise has been rebalancing from US income funds to Emerging Markets equities.

Balanced ETF managed by Franklin Bissett

Retired Money: Finally, a “Tontine” proposal for true Longevity Insurance

Posted By Jonathan Chevreau | January 26, 2018

Even if they’ve saved a million dollars, retiring baby boomers lacking Defined Benefit plans and their inherent longevity insurance justly fear outliving their money. It’s been said some fear this more than death itself.

The latest instalment of my MoneySense Retired Money column looks at an intriguing proposal made this week by the CD Howe Institute. Click on this highlighted text for the full link: An annuity that pays off — if you live long enough.

CD Howe has proposed the creation of a “pooled risk insurance” scheme called LIFE, which has all the hallmarks of a 17th century concept known as the tontine.

Moshe Milevsky has long suggested tontines as one remedy for outliving our money

Annuity expert Moshe Milevsky — also a finance professor at the Schulich School of Business and author of books like Pensionize Your Nest Egg — says LIFE is a “great idea.” He actually made the case for the resurrection of “tontine thinking” three years ago in a book I reviewed at the time also at MoneySense: Tontine: Retirement Plan of the Future?

The CD Howe paper (Headed for the Poor House) authored by Bonnie-Jeanne MacDonald doesn’t actually come out and call LIFE a tontine scheme but it certainly appears to contain the DNA of one.

LIFE stands for Living Income for the Elderly. The idea is that by sharing mortality risk, those who make it to age 85 start to receive monthly payouts for as long as they live, funded in part by the less fortunate members who die between 65 and 84. Apart from normal investment returns, the lucky survivors would enjoy the “added return” of the mortality premium.

Here are a million reasons to ignore 5 popular RRSP myths

Posted By Jonathan Chevreau | January 26, 2018

A lot of Canadians seem to be harbouring misconceptions about the value of RRSPs (Registered Retirement Savings Plans) but I can give you a million reasons why it’s dangerous to believe the five popular RRSP myths. My latest two blogs in the Financial Post this week explain why.

In Thursday’s Post, also published in some regional dailies, I described how young people can easily save a million dollars as long as they start early enough. Click on the highlighted text for the online link: How to build a million-dollar RRSP: it isn’t as hard to get there as you think.

Yes, it’s the old story of disciplined saving year in and year out, and the magic of compounding, all aided by the lure of an upfront tax refund and a multi-decade deferment of taxes. Of course, eventually it will be time to draw an income and pay some tax on the RRIF but that’s a story for another day.

Whether a million is enough is open to debate but with today’s paltry interest rates and rising expectations for long lives, the need for annuities or some form of longevity insurance has become urgent. More on that shortly.

Exploding 5 RRSP myths

This morning, Friday, the FP also ran a blog by me commenting on tax guru Jamie Golombek’s debunking of five common myths average investors harbour about RRSPs. You can find Golombek’s column here: The 5 biggest RRSP myths Canadians can’t stop repeating.

My take on it and a CIBC poll that accompanied the report, can be found here: Almost 40% of Canadians see ‘no point’ in investing in RRSPs — Here’s why they’re wrong.

In short, Golombek and I agree that the RRSP makes a lot more sense than investing only in taxable (non-registered or “open”) accounts. And while the TFSA is a compelling alternative to RRSPs for young people in low tax brackets, or for low-income seniors counting on living on Old Age Security, for the vast majority of middle- and upper-middle-income private sector workers lacking a Defined Benefit plan, the RRSP remains an essential tool for building wealth.

And as I also point out, if you’re in a high tax bracket, you don’t have to choose between an RRSP and a TFSA: you should maximize both!

Sizing up the Size Factor

Posted By Financial Independence Hub | January 25, 2018

Small-Cap Growth & Small-Cap Value begin to diverge in 2015

By Chris Ganatti, Wisdomtree Investments

Special to the Financial Independence Hub

It seems like everywhere across the investment landscape in these days there is talk about “factors.” While this isn’t necessarily a new discussion (research has been done for decades regarding the drivers of excess returns within equities), it is easier than ever to pick and choose the factors to which you would prefer exposure.

Size: popular but volatile

When people get excited about changes — changes in policy, changes in growth expectations, changes in political leadership — we’ve tended to see this excitement show up in the behavior of small-cap stocks. We saw this most recently during the “Trump trade,” with the bulk of the performance response coming between the November 8, 2016, election victory and the January 20, 2017, inauguration.

In 2012 and 2014, the Russell 2000 Value Index and the Russell 2000 Growth Index performed very similarly. Even the approximate 9% difference between these indexes in 2013 wasn’t particularly noteworthy because U.S. equity market indexes across the board tended to be up 30% to 40% that year.

The most recent “tough” year for small caps was 2015, and it was clear that the Russell 2000 Value Index was the laggard, as the Russell 2000 Growth Index was nearly flat. But 2016 saw greater than 20% outperformance of the Russell 2000 Value Index vs. the Russell 2000 Growth Index. In 2017 through July 14, these indexes have reversed again, with the Russell 2000 Growth Index now outperforming the Russell 2000 Value Index by 1,000 basis points (bps).

Value, Growth, Core…What’s the “Right” Choice?

Based on what we’re seeing in more recent index behavior, trying to time the shift between value and growth could carry with it a significant opportunity cost and the risk of being incorrect. Intuitively, one might say, “why not just own all the stocks?,” which could then lead to the Russell 2000 Index: very much the status quo choice. But as we mentioned before, it has never been easier to fine-tune exposure to a market segment through the use of factors.

Over the long term, did Size or “Size-Plus” lead to outperformance?

Early Retirement: It’s a Lifestyle, not a Vacation

Posted By Financial Independence Hub | January 24, 2018

Billy and Akaisha in the Highlands of Ecuador

By Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Ever wonder how it was for us in the beginning of living life without a paycheck?

In 1991, we understood that we were retiring with the idea that we would not be returning to work. If we had to, we would, but it was not part of the plan. We were not taking a break from work, we were leaving the working world all together. It was a little unnerving to be making such a clean break because we were out on our own with little emotional support from family and friends. Our retirement at age 38 challenged the belief systems of everyone we knew.

Important points

After all this time, the most important thing we want our Readers to know is: Don’t let anyone destroy your dream. Learn to be self-sufficient and self-motivating and you can create the life you want to live. If you desire something strongly and it makes you happy, don’t look to others for approval. Move in the direction of your dream.

Additionally, we want to inform you of the value of tracking spending. We’ve tracked our spending since our early years of owning a restaurant when we were in our 20’s. This has given us a sense of control over our finances and that brings self-confidence. If you track your spending you always know where you are financially, and if you know your net worth you can calculate what percentage you are spending. A rule of thumb is to keep your spending at 4% or below of your invested capital. If the market changes or your life circumstances change, knowing where you are with your money output is priceless.

What we wanted to achieve

Above all else, we wanted our freedom.

We had been working 60-80 hour work weeks with very little personal time or time with family and friends. While we consider ourselves to be productive people and we loved our jobs, this amount of time focused on work began to feel like a grind. I am sure many readers understand this feeling as we were not unique. We longed for large stretches of time before us that were unstructured so we could do as we wanted, when we wanted. So we traveled, read books, took classes, played music, took photos, and met new people – all on our own time schedule.

This pleased us greatly.