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National Bank Brokerage eliminates transaction fees for all Canadian ETF
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a sign that the brokerage is being subsidized by the ETF industry. The kickback may be only nano-fragments of a penny per lot but it has to be there.
the big 5 chartered banks are steadily moving into the robo advisor sector. TD is developing its own suite of ETFs, will be introducing robo services soon. BMO has been huge with its smartFolio robo for years. Power Financial has a big position in a small privately owned robo advisor. Can natBank & the other banks be far behind?
robos are being marketed to millennials as the smart low-cost way to manage investments without ever having to learn anything. No need to consult an expensive financial planner because he'll only end up selling the same basic couch potato plan that a robo could build for peanuts.
as YoungandThrifty says:
"... a financial solution that is easy to access and will take less than ten minutes a month to implement ... robo advisors are an excellent alternative to traditional ways of managing money and they specifically represent a superb value for the vast majority of Canadian millennials."
http://youngandthrifty.ca/complete-guide-to-canadas-robo-advisors/
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There could be other benefits to them beyond just a kickback from the ETFs. In fact, I’m a bit sceptical there’s a kickback at all, otherwise I’d expect it to be limited to certain ETF providers (i.e. Vanguard ETFs only).
It could be that ETFs are popular enough that they may have a large dark pool so filling market orders doesn’t cost them anything and they pocket any kickbacks for adding liquidity. They could also be lending out shares.
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^^
woz you're right of course. All these aspects are possibiities.
but - notwithstanding the sugary/buttery language of the natBank news release saying how it aims so altruistically to assist investors for free - the discount brokers cannot be doing this at a negative cost to themselves.
plus it's true that the big banks are crowding into robo land. I'm surprised to see YoungandThrifty saying that a significant number of millennials don't want to learn anything about investing, therefore ultra low cost robo advisors are the financial plan solution for them. I guess we've been spoiled, here in cmf forum, by so many genuinely talented young people as members.
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woz you're right of course. All these aspects are possibiities.
but - notwithstanding the sugary/buttery language of the natBank news release saying how it aims so altruistically to assist investors for free - the discount brokers cannot be doing this at a negative cost to themselves.
plus it's true that the big banks are crowding into robo land. I'm surprised to see YoungandThrifty saying that a significant number of millennials don't want to learn anything about investing, therefore ultra low cost robo advisors are the financial plan solution for them. I guess we've been spoiled, here in cmf forum, by so many genuinely talented young people as members.
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Depends on one's perspective. If/when I buy/sell ETFs, it would often be in 1000+ unit transactions and I think there may be many investors who do that sort of thing.
I find this trend of 'trading ETFs for free' to be an unwelcome trend. There has to be something in it for the brokerages and as HP suggests, they ain't doing it for free. And if their margins are getting squeezed, that means they will be trading something off in their website offerings, e.g. research, to keep profits up. A $10 commission has negligible consequences for a true investor (as compared to a trader).
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TD is developing its own ETFs... again? Funny, because over a decade ago, TD had some of the first ETFs in Canada including "TTF" which they later discontinued
This isn't negative cost. 100 shares is a lot, sure if you had $50k you could probably have 7-8 ETFs at 200-300 shares in a balanced portfolio, but if you wanted to rebalance regularly you'd very likely end up with some fees sooner or later. And if not, then National Bank is at the worst attracting money and clients - to whom they already know how much they make from other fees (upgrades to trading accounts, more clients to sell investment bank offerings to, etc etc). I'm sure some smart people have already done the math and it's going to work out for them. It wouldn't be enough to make me switch, however, I can still buy 1 share at Questrade of any Cdn ETF without a commission, which makes quarterly rebalancing very cheap.
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Actually, HB is correct that this happens all the time, but this isn't a kickback, it's an acceptable program cost that is open to everyone. I haven't looked into NA's practice, but I have an old bookmark from Charles Schwab that show how they work.
http://www.schwab.com/public/schwab...ice_disclosures/schwab_compensation.html#etfs
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I would call having 7-8 ETFs over-diversification, especially in a such a small portfolio.
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I would call it active investing. 3-4 ETFs will do the job for an index investor. Anything more than about 5 is slice and dice which, I suppose, is just another way of stock investing where a "sector" is a proxy for a "stock". Example: XEG being a proxy for SU.
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This is good news, hopefully it leads to a trend of other bank brokerages doing the same thing. Unfortunately though, most Canadian ETFs kind of suck. The only example I can think of that would interest me is the DLR/DLR.U combination for near-costless gambitting.
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In a large portfolio, you could use ETFs to do some rather unique things, but what does it add in a portfolio of $50K, other than having more to worry about?
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There are still some great ones. XIU has been around since 1999, trades tens of millions of shares daily (extremely liquid) and has 6.9% annual return since inception. And while paying out nearly 3% dividends, all eligible dividends. That's nothing to sneeze at! This has been a great ETF and continues to be.
XIC and ZCN have taken that management fee even lower, at rock-bottom 0.06% for TSX Composite exposure. Beautiful!
Some of the bond ETFs are pretty amazing too. These ones have been around since 2000 ... XBB with annual return of 5.7% since inception, and XSB at 4.4% since inception have both been top performers vs even the best mutual funds. And then Vanguard came along and dropped fees, making the new de facto funds VAB and VSB (real winners IMO).
I think all of these are pretty great ETFs.
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Agreed it does nothing in a smaller portfolio, even one of $200k or so size. In my not so humble opinion, I don't know why anyone with less than $500k in a portfolio would mess with anything more than a Couch Potato 3-4 ETF portfolio (asuming the intent to hold ETFs in the first place is to go passive).
At $1 million or more, one might be tempted to slice and dice a bit around the edges. FWIW, I provide input to a few ETF portfolios in the multi-million range and there is a bit of slicing and dicing there, e.g. CPD and ZRE, but no other 'sector' ETFs. When one is not 'hands on' with market cycles and sector rotation timing, it is a highly dangerous game. XIC and VTI do perfectly fine without trying to get a few decimal points of 'alpha'.
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The problem with XIU is not the ETF itself, i.e. liquidity and cost, but its holdings. There's just so much junk in there that is easily avoided with a portfolio of 5-12 stocks. You get stocks with high volatility and low returns like oil producers and miners in XIU. And names that you know are losers like Blackberry and Valeant. High quality dividend stocks are still low-risk and high-reward, and have been for the last few years while the TSX is flat.
With bond ETFs you're looking too much at the past returns. Future returns in those are not possible to replicate unless we go into negative interest rate territory, which is stupid and dumb and destroys all financial and investing logic anyways. Better cash than that junk currently yielding 1% and costing 0.5%.
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but how do we know what, exactly, they're holding vs what they've loaned out or are holding as samples or derivative bundles.
ETF prospectuses often say they are mandated to carry out representational sampling, hold futures and/or options contracts. But their audited financial statements, in canada, never show which securities are out on loan or held by proxy. An exception i've noticed is horizons betaPro, but even this fund company does not show the specific circumstances pertaining to each security it "holds."
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Also, Argonaut forgets the majority of investors are quite happy with market returns (less fees) and that *is* the beauty of the likes of XIC. Even most active money managers cannot provide enough alpha to beat the index either on a consistent basis long term. FWIW, I suspect most here cannot do it long term either. With some obvious exceptions, how many here have a 20 year stock picking track record that matches/beats the TSX?
The argument for index investing in most instances.
The argument for index investing in most instances.
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I don't decry index investing in general, just that the TSX is a bad index. For every dollar you invest, 69 cents is going into only 3 sectors. And two of those sectors are heavily tied to commodity prices. It's poor diversification, and lots of the names in them are just uninteresting investments. The Canadian market is small enough that it pays to know what you're putting your money into. Didn't Nortel comprise over a third of the index at one point? Crap index. The TSX 60 isn't some magical thing, just a collection of 60 stocks. And maybe it doesn't even own them, like humble says.
The S&P 500 is a good index, and much harder to beat.
The S&P 500 is a good index, and much harder to beat.
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Agreed the TSX is not a well balanced index. But for the bulk of investors who 'should' be in ETFs (at least passive indexing) and not a single stock, there is not much to choose from. One can either hold their nose and 'live with it', or consider the Cdn market equivalent to an Emerging Market and pick the AA slice appropriately, or slice and dice the Cdn market with a specialty ETF like ZLB for example that eliminates some of the crap.
There are Canadians who would invest on the basis of market cap and hold the Cdn equity component to perhaps 5% (or 10% if one is brave).
There are Canadians who would invest on the basis of market cap and hold the Cdn equity component to perhaps 5% (or 10% if one is brave).
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