Tag Archives: exchange-traded funds

The MoneySense ETF All-Stars 2020

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After a slight delay because of the Coronavirus and the bear market, MoneySense.ca has just published the 2020 edition of its annual feature, the ETF All-Stars. You can find the full report by clicking on the highlighted headline: Best ETFs for Canada 2020.

There you’ll find an overview of the changes this year as well as how our 8-person panel of ETF experts view the bear market. You can click on each tab (example Canadian equities, fixed income, etc.) to find the chart of the updated All-stars list. Each of the subheadings below contain hyperlinks to the underlying MoneySense content.

While our expert panel added a number of new ETFs this year – some in global fixed income, several low-volatility ETFs and two new families in the One-Decision Asset Allocation category – virtually all our last year’s picks returned, most unanimously. The only 2019 pick that was removed for the 2020 edition is ZPR, as preferred shares had another year of disappointing performance.

This seems to vindicate our long-term approach. Our list now consists of an elite 42 “All-Star” picks: a big jump up from 25 last year, plus 8 more individual “Desert Island” picks. So in total, we have 50 recommended ETFs, which should be a good start for readers in narrowing down the wealth of possible choices in this growing cornucopia of choice.

Canadian Equities

All four Canadian equity ETFs return: VCN, XIC, HXT and ZCN (See accompanying chart for full ETF names) plus we added BMO’s low-volatility Canadian equity ETF,  ZLB. See discussion on Low-vol ETFs further down. Remember that Canadian stocks are also amply represented in the One-Decision Asset Allocation ETFs discussed below.

US equities

The panel opted to retain all four of our 2019 US equity ETF picks, while adding three low-volatility ETFs. Returning picks are the U.S. Total US Market XUU from iShares, and three low-cost plays on the S&P500 index: VFV and VSP from Vanguard, and BMO’s ZSP. Readers should also check the latest crop of desert island picks: several panelists went with specialty US equity ETFs, such as HXQ.U from Mark Yamada and, — new this year — Yves Rebetez selected NXTG as a 5G (fifth generation wireless) Nasdaq play. The PWL team of Felix and Passmore picked a US small-cap value play: Avantis U.S. Small Cap ETF (AVUV/NYSE Arca).  And Dale Roberts chose the Vanguard Dividend Appreciation ETF (VIG/NYSE Arca).

International and Global equities

The panel retained our five international or global ETF All-stars from 2019: two from iShares (XAW and XEF) and three from Vanguard (VXC, VEE and VIU). But we also added the three low-volatility ETFs: ZLI, RWW/B and XMW. See the extended discussion of all these new low-volatility ETFs in the relevant section below. Continue Reading…

The Do’s and Don’ts of Trading ETFs

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By Bryan Moore, WisdomTree Canada
Special to the Financial Independence Hub
Exchange-traded funds (ETFs) have seen immense growth over the past decade. There are a multitude of benefits, including transparency, tax efficiency and the ability to make intraday trades, that have contributed to the use and growth of ETFs. While these are all beneficial to investors, we continue to see questions around ETF trading. Although ETFs trade on-exchange like stocks, investors have to understand that ETFs trade differently and that ETF execution is an imperative part of investing that should not be minimized.

Many investors know that when evaluating an ETF, average daily volume (ADV) does not indicate the true liquidity of an ETF. The liquidity of an ETF resides in its underlying securities, but how does one access that to ensure smooth execution?

Let’s discuss the do’s and the don’ts of how to best trade an ETF.

The Don’ts

1.)Don’t trade in the first or last 15 minutes of the trading day. This is when trade desks have less transparency and markets are more volatile.

2.)  Don’t place market orders; if you want to trade electronically, place limit orders. We advise investors to always use limit orders, especially in times of volatility. We also advise investors to not use stop-loss orders that turn into market orders.

The Do’s

1.) Do utilize your resources. Consult your trading desk as well as the relevant capital markets desk. The majority of issuers have capital markets teams that can consult on a trade. Additionally, the majority of advisors have access to a trading desk. These desks have access to expert market makers who can access the underlying liquidity.

2.) Do use a limit order when trading electronically, this cannot be said enough!

Most advisors have a trading desk through their firm or custodian, and they are always a resource as well. If there is one thing to take away from this piece, it’s to use your resources and make that phone call or email—it can be the difference between seamless execution and a very costly mistake.

Bryan Moore is Head of National Accounts and Capital Markets for WisdomTree Canada. 

Commissions, management fees and expenses all may be associated with investing in WisdomTree ETFs. Please read the relevant prospectus before investing. WisdomTree ETFs are not guaranteed, their values change frequently and past performance may not be repeated. 

Past performance is not indicative of future results. This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein. Neither WisdomTree nor its affiliates provide tax or legal advice. Investors seeking tax or legal advice should consult their tax or legal advisor. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.

“WisdomTree” is a marketing name used by WisdomTree Investments, Inc. and its affiliates globally. WisdomTree Asset Management Canada, Inc., a wholly-owned subsidiary of WisdomTree Investments, Inc., is the manager and trustee of the WisdomTree ETFs listed for trading on the Toronto Stock Exchange.

The many benefits of ETFs: What’s not to love about them?

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The availability of exchange-traded funds (ETFs) is one of the best things to happen to investors in the last twenty years. What’s not to love about ETFs?

Investors can get broad diversification on the cheap with just two or three funds. This simplicity is what tipped the scales for me nearly three years ago when I switched from a portfolio of 25 Canadian dividend stocks to my two-ETF solution (the four-minute portfolio).

But not all Canadian investors are as enamoured as I am with ETFs. While Canadian ETF assets climbed to a record $133.8 billion in assets under management (Canadian ETF Association – Aug 31 2017), the Canadian mutual fund industry claims a whopping $1.41 trillion in assets (Investment Funds Institute of Canada – Aug 31 3017).

That 10:1 ratio needs to change in a hurry, but there are still headwinds facing the average investor.

First of all, mutual funds have been around a lot longer than ETFs and their sales channels are more widely available. In plain language that means any Joe or Jane investor can go to an advisor and choose from a menu of in-house mutual funds, whereas if an investor wanted to build a portfolio of ETFs, his or her advisor might not have the right license to sell them, might not have access to an exchange to trade them, or might simply balk at the idea that a couple of low cost ETFs could outperform an actively managed portfolio of mutual funds.

Many investors are forced to go the do-it-yourself route like I did, learning on the fly from financial blogs, forums, and sometimes even the financial media about the benefits of investing in low cost ETFs.

 Benefits of low-cost ETFs

Despite these challenges, Pat Chiefalo, the new head of iShares Canada, sees a bright future for the ETF industry in Canada as investors seek lower price points and broader exposure to different markets.

“ETFs offer a simpler and cleaner approach to building a diversified portfolio and we see that diversification makes up the vast majority of investment returns,” said Chiefalo.

Indeed, fans of this blog and of the Canadian Couch Potato’s model portfolios will recognize products like iShares Core MSCI All Country World ex Canada Index ETF: also known as XAW. This ETF gives investors one-stop-shop access to U.S., international, and emerging markets — nearly 8,000 holdings in total — for just 22 basis points (0.22% MER).

It’s hard to believe a company can make money charging $22 for every $10,000 invested, but you won’t hear Canadian investors complain. That’s because a similar global mutual fund might cost $220 for every $10,000 invested (there’s that 10:1 ratio again).

How low will ETF costs go? Continue Reading…

Are Investment Fees for suckers?

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By Chris Ambridge, Transcend

Special to the Financial Independence Hub

Providing a service costs money, but paying a fee deemed as an unnecessary amount has come under attack from consumers at all levels. Think banking fees, or the perception of “hidden fees” on phone bills to brokerage and investment fees. Consumers are demanding more value and in some cases winning the battle.

There is more scrutiny on fees than ever before. Studies have shown many investors either believe they do not pay anything or have no idea what they do pay (Hearts & Wallets: Wants & Pricing — What Investors Buy & Competitive Ratings — 2016).

But everyone understands nothing in life is free and clients have a right to know what they pay.

 The long-view of investment fees  

For centuries, if an ordinary person had any liquid wealth the best they could hope for was meagre interest on their cash. Then, as the concept of companies developed, the notion of profiting from an equity investment emerged and stock exchanges were established in seventeenth century Europe to trade equities.

In Canada, much of the early development was raised in the London market, with public shares of large companies such as the Hudson’s Bay Company. The Toronto Stock Exchange (TSX) was created in 1861, and 17 years later the TSX was the second official stock exchange in Canada.

Commission-based Investing

At this time, being a stockbroker was a comfortable, genteel and very lucrative profession. By providing investors with access to markets, brokers earned fixed commissions of about 2% or more per trade. This lasted until May 1975, when negotiated commissions were introduced, leading to increased competition and a decrease in direct share ownership. Currently only 17% of the Canadian financial wallet is invested directly in stocks, down from 30% in 1990 when it was second in importance only to short-term deposits.

 Asset managers on the rise

 For less well-heeled investors, the first modern mutual fund was created in Canada in 1932. They were slow to catch on and grew very little between 1930 and 1970. However this was reversed in the 1970s when investors wanted greater stability following the oil crisis. Continue Reading…

How to add value in the Great Migration from mutual funds to ETFs

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By Luciano Siracusano III, Chief Investment Strategist, WisdomTree

and Christopher Carrano, Investment Analyst

 

Over the past few years, as hundreds of billions of dollars has flowed out of equity mutual funds and into exchange-traded funds (ETFs), a great migration of assets has been under way in the asset management business. This is occurring because of the changing business models of advisors and brokers-dealers and because of the unique benefits that ETFs can bring to investors, including relatively lower fees1, transparency of holdings, intraday liquidity and the potential for greater tax efficiency.

In many cases, “low-cost beta” ETFs, which track broad indexes, have outperformed the vast majority of active managers over time.2 This has made the decision to move assets from actively managed mutual funds into ETFs not just a decision based on cost, but also one based on performance.

But investors making this migration today have a choice that goes beyond just low-cost beta. For the past 10 years, WisdomTree has been showing investors ways to generate “low-cost alpha” in the form of fundamentally weighted ETFs that provide broad market exposure but that rebalance equity markets based on income, not market value. In recent years, other ETF managers have followed similar paths, creating narrower exposures that seek to tap into return premiums such as value, size, quality, momentum or low volatility—all of which have been associated with generating excess returns versus the market over time.

In the table above, we show how portfolios targeting value, size, quality, momentum and low volatility have performed compared to the S&P 500 Index in each calendar year since 2000. The last column on the right shows the annualized returns of these factor-based baskets over the 16-year period. Note that in each and every case, the annualized returns exceeded those of the broader market over the entire holding period.

Factors’ long-run performance

Yet, it is important to note that, despite all five of these factors outperforming the S&P 500 since 2000, they did not do so in each and every year. Factors are subject to the ebbs and flows of the business cycle, much like the sectors of the S&P. But, unlike factors, it is impossible for every sector of the S&P 500 to individually and collectively outperform the entire S&P 500 Index over time. The appeal of factor-based investing is that these major return premiums, based on decades of data, appear not to be subject to this same constraint.

Continue Reading…