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.

Hedged vs Unhedged ETFs explained

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Currency hedging can impact an ETF’s price and overall performance; learn about hedged and unhedged ETFs in Canada here.

 

By David Kitai, Harvest ETFs

(Sponsor Content)

The idea behind an ETF is relatively simple. At the most basic level, an ETF issuer creates a basket of securities and lists that basket on a stock exchange for investors to buy and sell. The ETF tracks the value of that basket and moves on the market accordingly.

The trouble is, nothing is ever quite so simple. Many Canadian investors want exposure to US securities, as US markets are the largest and most important in the world. What happens when the securities an ETF issuer uses are based in the US, and trade in US dollars, but their ETF will be listed on the TSX and trade in Canadian dollars?

Now, two factors are impacting the ETF: the value of its basket of securities, and the fluctuating exchange rate between USD and CAD. That means, regardless of the value of its holdings, if the USD goes up, the value of the ETF will also go up. If the USD falls, the ETF will also fall. This is called currency risk.

Some ETFs will employ a strategy called currency hedging to minimize the impact of currency risk on an ETF’s value. Those ETFs will usually be described as “Hedged CAD.”

What “Hedged CAD” means

Generally, when an ETF is Hedged to CAD its portfolio managers use a tool called a “currency forward” to lock in a specific exchange rate on a future date. In our Canadian ETF holding US securities example, if the USD has fallen by that date, the ETF makes a gain from the contract which offsets the value it lost from a falling USD on the portfolio holdings. If the USD has risen, the ETF nets a loss from the contract, which also offsets the value it gained from the rising USD.

The goal of currency hedging is not to maximize returns: the goal is to reduce the impact from currency risk as much as possible.

Harvest offers both hedged and unhedged ETFs in its lineup. A select group of Harvest Equity Income ETFs offer a Hedged “A” series and an unhedged “B” series to suit the goals of different investors. You can find a schedule of hedged and unhedged ETFs here.

Hedged vs Unhedged ETFs

So why would some investors want an unhedged ETF? The answer can vary somewhat. Currency hedging also comes with a small cost that is factored into performance over time.

Some investors may buy an unhedged ETF because they want to take on  exposure to currency risk. Some investors want to be exposed to certain currencies, and getting currency exposure through an ETF holding foreign securities is one way to achieve that. If an investor believes in the thesis behind a specific ETF, for example the US healthcare sector, and also believes the USD will rise against the Canadian dollar, then buying the unhedged “B” series of the Harvest Healthcare Leaders Income ETF (HHL:TSX) would give them exposure to both a basket of US healthcare stocks and the value of the US dollar against the Canadian dollar. Continue Reading…

When Women Succeed, we all Succeed. We just need to “Embrace Equity”

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By Christine Van Cauwenberghe

Special to Financial Independence Hub

Today is International Women’s Day (IWD), an opportunity to mark the social, political, economic, and cultural achievements of women.

The day also serves as a global call-to-action to promote gender parity. This year’s theme – embrace equity – is pertinent as equity is no longer a nice-to-have, but a must-have.

Over the years, we’ve come to better understand the impact of gender bias and discrimination, specifically in finance where women are traditionally overlooked and underrepresented – as advisors and as clients. By investing in gender equity, we can unlock economic growth and lay the groundwork for generations of women to take greater control of their financial futures.

Stereotypically and historically, financial planning has largely been viewed as a man’s job. While progress has been made to change this narrative, we need to see a greater shift away from monolithic thinking around traditional gender roles. Now more than ever, Canadians are seeking financial advice – this is creating an exciting opportunity for women to break the gender bias and get certified as a financial planner to catalyze representation in financial services. Relationship-building, intuitive insight, emotional intelligence, and trust are all traits that differentiate a good financial planner from a great one. These are skills that many women inherently hold and could further hone, making them well-suited to excel in an advisor role. They just need an entryway.

Canadian women will soon control half of accumulated financial wealth

Today, women are playing an active role in financial decision-making – for themselves and their households. Research shows that by 2026, women in Canada will control almost half of all accumulated financial wealth, pointing to a probable surge in demand for financial advice among females. Not to mention, women, on average, live longer than men, meaning that at some point in their lives they will take on the role of sole financial decision-maker. Despite this need, many women are unable to find a financial planner they connect with and 70 per cent change their advisor within one year following the death of their partner or spouse. Continue Reading…

Fraudsters more active than ever but less than half of us take protective measures

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Image www.antifraudcentre-centreantifraude.ca/

Yes, it’s March, also dubbed Fraud Prevention Month. To mark it, a TD survey has been released that finds fraudsters are getting more persistent as the cost of living keeps soaring.

While 62% of Canadians agree they are being targeted now more than ever, a whopping 46% haven’t taken any measures to educate themselves or take protective measures in the past year.

Among the findings:

  • 47% believe the rising cost of living and other financial hardships will expose them to more scams
  • 78% don’t have much confidence in their ability to identify fraud or scams
  • 54% feel stressed or anxious about financial fraud
  • 31% are too embarrassed to tell anyone if they were the victim of a fraud or scam
  • 66% of Gen Z and 44% of Millennials admit they wouldn’t tell someone if they were swindled

The full press release is here.

“As Canadians report being targeted by a record number of financial fraud attempts, many can benefit from using the tools and resources available to protect themselves and their loved ones,” says Mohamed Manji, Vice President of Canadian Fraud Management at TD in the release, “It’s very important to exercise caution, especially at a time when fraudsters may take advantage of the economic challenges many Canadians are currently facing. In addition to the robust security measures TD has in place for its customers, the best defence against financial fraud is being aware and knowing how to spot it.”

Both TD and the Canadian Anti-Fraud Centre offer a comprehensive library of articles discussing the latest trends in scams and measures Canadians can take to enhance their awareness and avoid falling victim to fraudsters.

Targeting mostly via e-mail or telephone 

The survey found 72% of Canadians reported being targeted by email/text message fraud, up 14 percentage points from last year, while 66% were targeted over the phone. Oddly, the poll finds Fraudsters seem to be pivoting away from social media, with only 26% targeted this way, 10 percentage points less than 2022.

Those polled were most concerned about identity theft (52%), title fraud (23%) and fake emergencies (20%).

Factors likely to increase vulnerability to fraud include age (43%),  loneliness or isolation (35%), moving recently to Canada (34%) and financial hardship or job loss (32%).

“We’re seeing more fraudsters preying on customers through the ‘grandparent’ or ’emergency’ scam,” adds Manji. “This cruel crime is often successful because it exploits someone’s desire to care for their loved ones. If you get a call from somebody claiming to be a family member or friend in immediate need of funds, hang up the phone and call them back using a number you have for them.”

TD says that with 31% saying they’d be too embarrassed to tell anyone if they were a fraud or scam victim, it’s clear there’s some stigma in talking about this type of crime. If someone believes they’ve fallen victim to a scam, they should immediately report it to their financial institution, local police department, credit bureaus (Equifax and TransUnion) and the Canadian Anti-Fraud Centre.

How can Canadians protect themselves?

TD recommends the following tips and advice: Continue Reading…

Sector ETFs for Defensive Plays

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By Mirza Shakir, Associate Portfolio Manager, BMO ETFs

(Sponsor Content)

What are Sector ETFs?

Sector ETFs allow targeted exposure to sectors or industries like financials, materials, or information technology – domestic, regional, or global. The sectors are usually classified according to the Global Industry Classification Standard (GICS), but other classifications can also be used. While sector ETFs could be active funds, most track an index, offering transparency, liquidity, and low fees.

There are eleven broad GICS sectors that can be invested in with sector ETFs.

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Utilities
  • Real Estate
  • Communication Services
  • Financials
  • Health Care
  • Consumer Staples
  • Information Technology

There are two common approaches in constructing a sector portfolio: market capitalization weighted and equal weighted. As the names suggest, the former approach weights securities in the portfolio by market capitalization while the latter weights them equally.

At BMO ETFs, our suite of sector ETFs covers equal-weighted and market-weighted strategies across all sectors, locally and globally. We opt for equal-weighted strategies for sectors that have the potential to get concentrated in a few large names with the market-capitalization approach, ensuring effective diversification and mitigating individual company risk.

 

Source: BMO GAM, BMO ETF Roadmap February 2023 (Visit ETF Centre – CA EN INVESTORS (bmogam.com)

Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.

Risk is defined as the uncertainty of return and the potential for capital loss in your investments.

Why Invest in Sector ETFs?

Sector ETFs can offer differentiated return and risk profiles for investors, not only from broad market portfolios but also from other sectors. Additionally, investing in a sector ETF allows access to a broad range of companies that have businesses that operate in similar or related industries, which can be more diversified than investing in a single stock. The investor does not have to place individual bets on single companies, which helps limit company-specific risks.

The table shown at the top of this blog, and shown to the right in miniature, shows the performance of all sectors in the U.S. from 2011 to 2022. Notably, the best and worst performing sectors change every year, leaving an opportunity for market timing to generate high returns. However, timing the markets can be extremely difficult. A more effective strategy can be sector rotation, which involves overweighting or underweighting sectors relative to the stage of the business cycle.

Playing Defense – Sector Rotation Strategies

The business or economic cycle refers to a cycle of expansion and contraction that economies undergo, accompanied by similar upswings and downswings in economic output and employment. Continue Reading…

Why Healthcare could lead this market cycle

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Chief Investment Officer explains why this massive sector has the right mix of styles and innovation to show leadership as markets recover

 

Image Harvest ETFs/Shutterstock

By Paul MacDonald, CFA, Harvest ETFs

(Sponsor Content)

Market cycles are often defined by their leaders. While many sectors and areas of the market can provide returns, the tone and tempo of market narratives are often set by the companies, styles and sectors that are broadly considered the ‘leaders.’

Take the past roughly 15 years as an example. The leadership story on markets was almost completely defined by technology. Tech leaders were synonymous with growth, and that growth was synonymous with leadership during a period of mostly uninterrupted bull market runs.

The bear market we experienced in 2022 hit the reset button on leadership. Not necessarily by removing tech as the key growth sector — it still shows plenty of attractive growth traits — but by resetting some of the fundamental dynamics in the market.

The end of near-zero interest rates has changed the liquidity picture on markets. Volatility, as measured by the VIX, has been structurally higher since the onset of the pandemic, and we are likely already in a period of slow economic growth: if not a recession. Rather than the pure-growth traits investors sought for leadership, in the near to medium term we see potential for leadership in areas that balance growth prospects and innovation with stability and consistency.

That sector is healthcare.

3 tailwinds means Healthcare can lead

The US healthcare sector is, in the eyes of many investors, a sleeping giant. Looking at just the 20 leading companies held in the Harvest Healthcare Leaders Income ETF (HHL:TSX) we see a combined market capitalization of $4.86 trillion, more than 150% of the total market cap of the S&P TSX Composite. These are huge companies in a huge sector, which covers business lines as diverse as pharmaceuticals, healthcare services, med-tech, biotech, and healthcare equipment.

The healthcare sector overall benefits from three structural long-term tailwinds. The first is the aging of the developed world. As the world’s richest countries get older, they are spending more on healthcare. In the US, for example, individuals aged 19-44 spend an average of $4,856 [US$] on healthcare, according to the National Health Statistics Group. That number rises to $10,212 in the 45-64 age bracket, and rises again to $19,098 in the 65+ age bracket.

The developed world is getting older. By 2050 28.5% of North Americans and 35% of Europeans are expected to be over the age of 60, according to the UN. As those places age, their older populations will spend more on healthcare. That demand is largely expected to be stable for the simple fact that people are less likely to cut expenditures on life-saving medications than they are on something more discretionary. Healthcare is therefore seen as a superior good.

The second tailwind is the economic growth of the developing world. Taking China and India as prime examples, the WHO has found that as those countries’ GDP has grown, their healthcare expenditure has grown at a faster rate. These huge markets are already being captured by some of the large-cap US healthcare leaders held in HHL. Continue Reading…