Are ETFs For You?

One Distinctive Difference Between ETFs and Mutual Funds

First Published Date: December 6, 2016

There are currently 7 providers in Canada offering ETFs and more on the way. Since its journey began on the Toronto Stock Exchange in 1990 for the first time, ETFs have become a global phenomenon and are trading all major global exchanges around the world. On one side ETF markets are exploding around the globe, but on the other side mutual fund markets are shrinking.

Author/Copyright: Ahmed Dawn www.adawnjournal.com

Savvy investors are switching from mutual funds to ETFs due to their much lower cost and the flexibility of trading on a stock exchange just like a stock. If there is a major distinctive difference you want to point out between mutual funds and ETfs – it would be that mutual funds are sold, not bought, while ETFs are bought, not sold.

Most investors hold mutual funds because they were sold to them by their advisors. Mutual funds pay upfront and ongoing commissions to advisors when they sell these to their clients. However, as ETFs trade on exchanges just like stocks, advisors don’t get any compensation for recommending them to their clients. So there is no point selling something that does not make money, although the costs to hold ETFs are ridiculously lower than mutual funds.

The main reason investors refrain from buying ETFs over mutual funds is because a trading or brokerage account is required to buy ETFs, but advisors can sell mutual funds by opening a simple investment account at the financial institution they are associated with – and no brokerage or trading account is required.

Opening a trading account and buying ETFs may require more work and research, but the costs you will be saving over a lifetime is worth the hassle. All the information you need is available online for free to learn more on ETFs and to become a better investor. Visit the A Dawn Journal ETF Section to learn more about ETFs and I discussed how to open a trading account in my own book Invest Now in simple words.

Quietly These New Mutual Fund Rules Take Effect in Canada

Canada’s New Mutual Fund Rules

First Published Date: July 23, 2016

Starting May 30, new mutual fund rules came into place that most mutual fund investors were not aware of. Any investment advisers and institutions selling mutual funds are required to give their clients a document known as Fund Facts before the sale or transaction happens.

This paper or document called Fund Facts should clearly show information about the mutual funds in a simple way such as funds’ investment objectives, managers, historical performance, and most importantly all the fees associated with the funds.

In the past, this information was available online at the fund companies’ websites and it was made available to the investors after the sale had gone through. However, the information was not presented in a clear manner easily understood.

However, under the new rules, investors will have precise and related information at their disposal and this will help them make better decisions.

Author/Copyright: Ahmed Dawn www.adawnjournal.com

The Fund Fact document is a two-page, double-sided document that does not take long to read. If you want, you can have this document long before meeting your advisers by going online or calling the fund company to mail it or fax it to you. This is all free.

Mutual funds in Canada have been known to have one of the highest fees compared to other countries and trends continue to switch from mutual funds to ETFs, which have much lower fees and transparent features that are easy to understand and easier to transact.

Mutual Fund Fees Can Cost As Much As A Small House

Avoid Mutual Fund Fees

First Published Date: August 17, 2016

It is an open secret that mutual fund fees can cost you quite a fortune in one lifetime, especially in Canada where fees are even higher than other industrialized countries. Given the fact that there are other low-cost options available like ETFs, investors often forget or ignore what they are paying in the long run.

Toronto-based digital wealth management firm Nest Wealth released some cold, hard figures to put the fees you will be paying holding mutual funds into perspective. For example, if you take a 25 year-old investor starting with a $10,000 investment and adding $5,800 for the next 39 years, at a rate of 6.5 percent return and 2.35 percent mutual fund fees, the investor would have a balance of $229,000, but the fees paid would be $323,654.50.

With those kinds of fees, it is possible to buy a small house in many Canadian cities. It always pays to pay attention to what you are paying for fees and what you can do about it. A study released by Environics Analytics found out that the average Canadian household’s liquid assets amount to $229,000. If you are paying annual 2.35% fees on investments, it will definitely take out a good chunk out of your retirement, considering many ETFs fees are below 0.50 percent.

Nest Wealth offers some neat calculators and portfolio-building tools on its website. You will be able to visualize how different fees or mutual fund MERs affect your investments in dollar terms and what kind of customized portfolios are suitable for you based on your scenarios.

Regardless, you are building your portfolios online or face to face with a qualified financial professional, always do your own research and make best-educated decisions that suit your needs and lifestyle.

Canadian ETFs Explode

WisdomTree ETFs Canada

First Published Date: May 15, 2016

The Canadian ETF market passed a milestone by adding 400 available ETFs trading on the Toronto Stock Exchange (TSX). As average investors are gradually realizing the significance of paying low fees on ETFs, they are ditching high-fee mutual funds in favour of low-fee ETFs. After all, why would someone want to pay a 2.50 percent MER on a mutual fund when they can obtain a very similar ETF with a 0.10 to 0.25 percent fee? It’s no wonder assets under management for ETFs on TSX have passed or are close to passing $100 billion.

Big mutual fund companies, which have been in denial of getting into ETFs for decades, are coming to the realization that there is no other choice but to enter the ETF arena. Their excuse was that, due to its low fees, no money could be made from ETFs. However, the change of heart happened when they finally (although they were late) realized that people are shifting from mutual funds and ETFs and if they don’t change now other providers will keep grabbing market share and they will be left out in the middle of nowhere. Big mutual fund companies like CI Investments and Mackenzie are now active in ETFs.

BMO (Bank of Montreal) deserves credit for recognizing ETF potential many years ago, before any other banks or mutual fund companies. And it has been awarded generously for its far-fetched decision. BMO is the second largest ETF player in Canada today after iShares and before Vanguard with $27 billion assets under management.

Also, WisdomTree, a major ETF provider in the US, has announced that it will launch its ETFs in Canada and is awaiting Canadian regulatory approval. You will see more ETF players from within and outside Canada to offer ETFs for Canadian investors in the future.

More players mean more choices, more competition, and better value; that’s good for everyone and that’s what we want in Canada.

CI Financial & TD Bank Are Slow to Realize ETF Potential

BMO’s Farsighted ETF Vision

First Published Date: November 19, 2015

Canada’s second largest publicly-traded fund company CI Financial likes to see itself as an industry pioneer that consistently anticipates and responds to the changing needs of the marketplace. Remember the CI Pacific fund, Segregated Funds, and Sector Funds concepts that CI revolutionized? However, CI missed the boat on ETF funds, as did TD Bank, because they finally realized that the ETF arena is where money will be pouring in for the next several decades, and where another player BMO is already reaping benefits from its farsighted vision that made BMO enter the ETF arena in 2009.

CI enters the ETF arena by acquiring First Asset Investment Management, which has $3 billion in assets under management and $1.6 billion of that is in active ETFs. BMO’s ETF assets under management are already staying high at nearly $24 billion, making it Canada’s second largest ETF provider after iShares.

And TD? It will be entering the ETF arena as the 3rd bank player (after BMO and RBC) in early 2016. TD hasn’t revealed much detail yet about its ETFs, but it was widely expected that, like CI, TD would have had no choice but to enter the ETF marketplace. However, the difference between CI and TD is that TD already attempted to enter the ETF marketplace in the past (in 2001), but failed to keep up its pace due to unexpected low trading volumes.

Things have changed since then. The Canadian ETF sector has come a long way and is currently sitting with $87 billion under management with 12 players. The growth potential of ETF industry cannot be ignored anymore and CI and TD made the right delayed call to enter the marketplace. Here is a simple example of how BMO rapidly increased its AUM by acting ahead of everyone else.

BMO ETF AUM (Asset Under Management)

2009 – Start

2010 September – $1 billion

2011 April – $2 billion

2011 September – $3 billion

2012 January – $4 billion

2012 March – $5 billion

2012 August – $7 billion

2013 March – $10 billion

2015 November – Nearly 24 billion

So what does it mean to have more players for Canadian investors? More competition, wider selections, more choices, broader distribution channels, and yes, lower costs. As the ETF sector is maturing and going through tremendous growth in Canada, expect to see more players putting their feet in in the days to come.