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My latest Financial Post column has just been published: online and in the Wednesday paper (page FP4): Click on the highlighted headline for the full column: Spoiled for Choice: How investors can navigate the New World of ETF Overload.
While Canadian ETF assets are still about a tenth those of mutual funds, a similar 10-fold disparity in the costs of Exchange Trade Funds versus Canada’s notoriously high mutual fund Management Expense Ratios (MERs) has the ETF industry rapidly playing catch up to the entrenched mutual fund industry.
As one of the ETF experts quoted notes (Dale Roberts, a regular Hub contributor and the blogger behind CutthecrapInvesting), ETF sales have already caught up with mutual funds. And while the early ETF growth was fuelled by Do it Yourself investors buying their own investments (including ETFs) at discount brokerages (with or without the help of fee-based advisors) the next stage of growth is being fuelled by the drive to simplicity and convenience.
Robo advisors came first, with several Canadian operations launching in 2004 or soon thereafter. True, the Robos are slightly more costly than a pure DIY ETF strategy implemented at a discounter, but the extra 0.5% charge (in most cases) is arguably well worth it in terms of hand-holding, asset allocation and automatic rebalancing.
Which is the bigger game changer?
As of 2018, though, investors have been able to get the best of both worlds with the one-decision asset allocation ETFs pioneered by Vanguard Canada, and soon imitated by BMO, iShares and Horizons.
The FP article goes into the specifics of these products, which have been embraced by investors: Vanguard has been first to gather more than $1 billion in them.
Depending on the manufacturer, these solutions let you choose from three to five portfolios ranging from conservative 80% fixed income to 20% equities, to aggressive 100% equity solutions, and in between classic balanced portfolios of 60% stocks to 40% bonds embraced by most pension funds. [TSX tickers are similar: in the Balanced camp VBAL is Vanguard’s, ZBAL BMO’s and XBAL iShares.’]
The piece also offers the views of two other well-known Canadian bloggers whose work is sometimes reprised here at the Hub: Robb Engen of Boomer & Echo, and Mark Seed of YourOwnAdvisor.
In the FP, Roberts opines that white both are game changers, Robo services are perhaps the bigger one, even though they preceded the asset allocation ETFs by about four years (2014 or so for Robos, 2018 for one-decision asset allocation ETFs). No doubt there will be still more significant innovations to come, as fintech continues to drive down pricing by while adding value and even advice through digital-mediated online services.
In these troubled macroeconomic times, investors need all the help they can get!
