Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

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…

Healthcare stocks promise maximum gains with least amount of risk

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Adding the Best Healthcare Sector Stocks to your Portfolio can Lead to Profits over Time, Especially when the Company Offers a Broad Set of Essential Services or Products.

 

Healthcare investments are stocks, mutual funds or ETFs involved in the healthcare industry.  Healthcare sector stocks involve a variety of industries, including hospitals, health insurance providers, medical devices and technologies, and pharmaceuticals.

If you are adding a healthcare investment such as a drug stock to your portfolio, you may want to consider a drug company that has been paying dividends, or one with a diverse portfolio.

Understanding the offerings within healthcare sector stocks

Drug stocks have a special appeal for many investors looking for healthcare investments. They assume that as the baby-boom generation goes through late middle age and beyond, demand for drugs will skyrocket. That’s undoubtedly true.

However, pharmaceutical companies are more speculative than many investors in healthcare investments realize.

Drug companies often invest tens if not hundreds of millions of dollars to create, test and secure regulatory approval for a single new drug. Even then, it may not manage to recover its investment before its patent expires.

Even when pharmaceutical industry research succeeds and creates new products worthy of healthcare investments, drug companies have to live with the constant threat of competition from breakthrough products that work better and/or are cheaper. But sometimes, drug company research fails to produce the hoped-for results. This failure may only become apparent with unsatisfactory results from the lengthy, costly drug trials required to gain regulatory approval.

Meantime, we continue to see attractive investment opportunities among the top medical device manufacturers. That includes Steris plc. It’s a market leader in the growing number of product categories in which it operates. That brightens the outlook for its investors.

Steris plc, symbol STE on New York, is an attractive buy for investors seeking long-term gains in healthcare sector stocks

Steris sells equipment and other products and services used in hospitals and laboratories.

These include anti-microbial and routine skin care products; biohazardous waste management systems; cleaning/decontamination systems; contract sterilization; environmental decontamination products; and food safety products.

Other products and services include high temperature sterile processing systems; low temperature sterile processing systems; microbial reduction services; patient positioning and transport systems; pure water systems; surgical lights; and surgical tables.

The company has approximately 13,000 employees worldwide and serves customers in over 100 countries. Steris moved its corporate domicile to Ireland in 2019 to benefit from that country’s lower tax rates. However, it’s headquartered in the U.S. Continue Reading…

Living the Dividend Dream

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By Mark Seed

Special to Financial Independence Hub

Incredibly, there are some investors out there truly living their dividend dream.

Today’s post highlights one of those investors for investing inspiration…

But let’s back up a bit …

Some time ago … yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.

Indexers gasped and likely unsubscribed to my site!

Well, even though some considerable time has passed since that post my thinking and income goals remain the same – as least in part for semi-retirement planning:

I continue to believe “living off dividends” (and/or distributions) should work out well for us.

And I’m not alone.

For today’s post, I’m profiling a very successful investor …. who not only dreams of dividends but is living the dividend dream right now.

Living The Dividend Dream

Welcome to the site for this latest investor profile, The Dividend Dream.

Living the Dividend Dream - Investor Profile

Source: https://twitter.com/DreamDividend

I look forward to sharing this interesting new investor profile below but first up, a recap about why dividends and distributions continue to matter to me/us on our income journey.

Yes, my approach to live off dividends remains alive and well in 2023!

MOA Dividend Income Target 2023

My dedicated page including many of the stocks I own. 

Here are some reasons why some investors couldn’t care less about dividends:

  • The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. Fair. 
  • Dividends are not magical – there is nothing special about them. Sure, of course they are not magical or free! 
  • A dollar of dividends is = a one dollar increase in the stock price. True. 
  • Stock picking (with dividend stocks) is fraught with under performance of the index long-term. I’m not convinced about that. 
  • You can never possibly know long-term how dividends may or may not be paid by any company. Fair. 
In many respects these investors are not wrong and/or are not pointing out some challenges with DIY stock investing.

You do need a bunch of capital to generate meaningful dividend income.

Dividends are part of total return.

Stock picking to some degree opens opportunities for market under performance.

However, my responses and approach to some of these items are as follows, since I believe dividend investing offers far more good than harm:

  • While market underperformance may occur (that is subjective and up to personal investment success, luck, and other factors that are very difficult to substantiate), dividend investing offers up some essential long-term investing discipline, for me at least, to stay the investing course, including when markets tank in any given year. If anything, I buy more!
  • This way of investing provides HUGE motivation and inspiration – to keep investing, in any market climate. The way I see it: money that makes money can make more money.
  • Dividend investing, seeing the tangible money flow into our accounts month-after-month, reinforces my belief that nobody cares more about my financial well-being than I do (except for my wife!). Ha.

All kidding aside…dividend investing and having a plan associated with building ever-growing income offers something that some other ways of investing just can’t readily offer: support for the emotional discipline to execute this strategy, come heck or high water, or even until the end of all capitalism as we know it!

But that’s just me and our plan.

Your mileage might vary and that’s OK.

There are many ways to invest and many reasons that folks invest in what they do.

That said, dividend investing is far from any local phenomena.

I reached out to The Dividend Dream for her to share her reasons for investing in dividend paying stocks, including why dividends matter (or not!), and any considerations she has for any investors at any age on their investing journey. [Editor’s note: for now, “she” wishes to remain anonymous, as explained below; hence there is no photo-JC]

Living The Dividend Dream – Dividend Dream – welcome to the site! 

Hey hey … thanks for having me. I appreciate the invite!

Before we dive into your investing thesis, why you own what you own, and much more – tell us a bit about yourself.

Well, what can I say. People call me The Dream, Dream Girl, aka Dreamer.

I’m anonymous for now as I’m still working a bit, although I entered into a “freestyle” work optional state this year (2023). I’m a businesswoman, living in the southern United States. My field is strategy and marketing, and I went to a top MBA school. I’m in my mid-40s and am married to a wonderful woman who is a professor. I am the breadwinner in the family – by far – so I feel financially responsible for our future. And yeah … that’s the skinny, essentially.

Interesting!

I feel personal finance is personal – a constant refrain on this site. What I mean by this is: everyone’s financial situation is different, and they have personal reasons to invest the way they do, to realize their individualized goals.

How did you get started with investing?

I actually have been thinking about “retirement” ever since I was a teenager. Really, it’s always been more about being financially secure and independent. My family fell on some hard times and it scared me. I didn’t really have any choice but to rely on myself. I held several jobs in high school and throughout college. So … long story short, after college I started like everyone else with a 401(k) at work, trying to max that out every year. But when I started getting into my 30s that’s when I started to really breakout out of the mold, rolling past 401(k)s into investment accounts where I had complete control and could pick to hold whatever assets I wanted, not just the choices provided by an employer.

Awesome. OK, let’s get into it. Why dividend investing? Why do you invest the way you do? 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…

The Vanguard Effect on Mutual Funds, Fees and Performance

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Vanguard is best known in Canada for its low cost, passively managed ETFs. Indeed, since entering the Canadian market in 2011, Vanguard now boasts a line-up of 37 ETFs with more than $40 billion in assets under management – making it the third largest ETF provider in Canada.

Keeping costs low is in Vanguard’s DNA. Their low fee philosophy hasn’t only benefited investors in Vanguard ETFs – it’s helped drive down costs across the Canadian ETF industry. This process has come to be known as the “Vanguard Effect.”

The cost of Vanguard ETFs is 54% lower than the industry average. Since 2011, they’ve cut their ETF’s average MER by almost half – saving their investors more than $10 million.

The Vanguard Effect has made a noticeable difference for ETF investors in Canada, but the vast majority of Canadian investments are still held in actively managed mutual funds.

  • Mutual fund assets totalled $1.896 trillion at the end of May 2021.
  • ETF assets totalled $297.4 billion at the end of May 2021.

The Vanguard Effect on Mutual Funds

Vanguard took aim at the Canadian mutual fund market three years ago with the launch of four actively managed funds, including the Vanguard Global Balanced Fund (VIC100), the Vanguard Global Dividend Fund (VIC200), the Vanguard U.S. Value Windsor Fund (VIC300) and the Vanguard International Growth Fund (VIC400).

Ticker Name Category Management Fee MER
VIC100 Vanguard Global Balanced Series F Global Equity Balanced 0.34% 0.54%
VIC200 Vanguard Global Dividend Series F Global Equity 0.30% 0.48%
VIC300 Vanguard Windsor U.S Value Series F US Equity 0.36% 0.54%
VIC400 Vanguard International Growth Series F International Equity 0.40% 0.58%

With three years under their belt in the Canadian mutual fund space, I thought I’d check in on the performance of Vanguard’s mutual funds.

While investors can’t glean much over a three-year period, the Vanguard funds have performed well compared to their benchmarks and industry peers.

  • Vanguard Global Balanced Fund (VIC100): +9.28% – VIC100 is a global balanced strategy with a strategic mix of 35% fixed income and 65% equities. It was designed to mirror the Vanguard Global Wellington Fund offered in the US – a 5-star rated fund by Morningstar. VIC100’s returns place it in the first quartile of its Global Equity Balanced category since inception.
  • Global Dividend Fund-Series F (VIC200): +6.06% – VIC200 invests in higher dividend yielding securities across the globe. Its style has been out of favour for most of the time since inception as markets have preferred high growth companies that don’t pay dividends. That has changed Year-to-Date (YTD), and VIC200’s returns are in the first quartile of its Global Equity category.
  • Windsor U.S. Value Fund-Series F (VIC300): +11.28% – VIC300 is the sister fund to the Vanguard Windsor Fund, offered in the US. The fund offers exposure to US large and mid-cap value stocks. Its value orientation was out of favour for the last few years but it’s ahead of its Russell 1000 Value Benchmark after fees since inception. As value has roared back, the fund is in the first decile of the US Equity category in Canada YTD.
  • International Growth Fund-Series F (VIC400): +19.20% – VIC400 has been a top performing fund since inception. It offers exposure to stocks primarily outside of North America. It mirrors a fund of the same name offered to US investors since 1981. The US fund is rated 5-stars by Morningstar. VIC400 has outperformed its benchmark by 12% per year.
As of Jun 30, 2021 – Peers beaten in the fund’s Morningstar category
Ticker Name Category Annlzd 3 Yr % Peers beaten 3 Yr
VIC100 Vanguard Global Balanced Series F Global Equity Balanced 9.28% 79%
VIC200 Vanguard Global Dividend Series F Global Equity 6.06% 12%
VIC300 Vanguard Windsor U.S Value Series F US Equity 11.28% 30%
VIC400 Vanguard International Growth Series F International Equity 19.20% 98%

[Editor’s Note: in September, Vanguard Canada launched two more mutual funds: VIC500 and VIC600]

I recently had the opportunity to speak with Tim Huver, Head of Intermediary Sales at Vanguard Investments Canada about the success of their mutual funds and what we can expect in the future. Continue Reading…