Think Twice before Replacing Your “Risky” Bonds with “Safe” Stocks

By Dan Hallett, CFA, CFP on April 11th, 2017

For virtually my entire career, bond yields have been characterized as "historically low" – yet have fallen with few interruptions. Since the Financial Crisis, however, yields have been super skinny and have continued falling. Razor thin yields challenge traditional balanced portfolios (which I wrote about in this 2012 blog post). So many are dumping some or all of their bonds for... Read More

Concerns with “Fund Facts” and “ETF Facts” Risk Ratings

By Dan Hallett, CFA, CFP on January 6th, 2017

“Fund Facts” is a 2 to 4 page regulatory summary document designed to inform investors on a mutual fund’s salient features. A version for exchange-traded funds – i.e. ETF Facts – will be required starting next September. One of the most important aspects of Fund Facts and ETF Facts is its “how risky is it?” section. While the Canadian Securities Administrators (CSA) recently took... Read More

Regulations Will Create Scalability Challenges for Canadian Robo-advisors

By Dan Hallett, CFA, CFP on November 18th, 2016

Robo-advisors offer investment advice through websites and mobile applications. In the U.S. this segment – which was born after the Financial Crisis – manages tens of billions of dollars for clients. American robo-advisors can provide investment advice with minimal personal contact. And while they are Registered Investment Advisers, they have the ability to opt-out of their fiduciary... Read More

Making Sense of Your New CRM2 Performance Report

By Dan Hallett, CFA, CFP on September 14th, 2016

Client Relationship Management (CRM2) became official. CRM2 is a new set of rules requiring most "financial advisors" to provide two new annual reports to each client – one detailing amounts paid to advisory firms and another detailing performance. The performance report will show your investment accounts' percentage returns. The following are important things to know when reviewing your CRM2... Read More

Self-Inflicted Problems: Mutual Fund Industry Has Fought Investor-Friendly Reforms

By Dan Hallett, CFA, CFP on July 21st, 2016

As seen in the May 2016 edition of Investment Executive. Recently published research on mutual fund commissions' influence on fund flows led by Douglas Cumming, finance professor at the Schulich School of Business at York University in Toronto – and the related Frequently Asked Questions document – has triggered passionate responses like nothing I have seen in my career. The... Read More

Beware of Advertisements for F-series Investment Funds

By Dan Hallett, CFA, CFP on May 27th, 2016

Marketing is a critical component of every business, and the investment industry is no different.  But an industry trusted with the management of individuals' life savings should be held to a higher standard. To an extent, it is.  Regulators occasionally inspect marketing materials of portfolio managers and mutual fund sponsors.  But some ads that play by the rules still stretch... Read More

Does Hoarding Cash Protect Investors from the Bear?

By Dan Hallett, CFA, CFP on March 31st, 2016

Over the past several years, I met many investors who pulled money out of the market prior to the 2007-09 Financial Crisis. Their reasons for pulling out sounded logical.  Their profits were big while the market was low.  But these investors and others like them faced a sober reality as stock prices marched sharply higher in the face of the worries that prompted these folks to sell in... Read More

Reduced Fund Payout Is Good But Beware of Unsavoury Sales Pitch

By Dan Hallett, CFA, CFP on December 16th, 2015

I recently wrote about how high-payout monthly income funds are being mis-sold to investors and how some fund companies had provided false and misleading information to at least one end investor. I always take notice of fund distribution cuts so a recent announcement caught my attention. While the announced distribution cut is good news (because it addresses sustainability) it comes with a... Read More

High-payout Funds Are a Cash Flow Mirage

By Dan Hallett, CFA, CFP on November 27th, 2015

In the world of investing, nothing turns my stomach more than when a member of the investment industry misleads investors and then directly benefits from said misinformation. Usually only subtle trickery is at play. And most often I have seen this in the form of funds sporting unsustainable cash payouts – which I’ve been studying and writing about since 2001. A ‘High-payout’... Read More

SPIVA Report Interesting but Misses Key Message for Investors

By Dan Hallett, CFA, CFP on November 6th, 2015

S&P Dow Jones Indices (SPDJI) publishes two reports annually comparing the performance of actively managed mutual funds against common financial market benchmarks. The recently-published mid-year SPIVA Canada Scorecard doesn’t paint a flattering picture of Canadian mutual fund returns. Although our client portfolios don’t include the retail versions of funds that SPIVA evaluates, I... Read More

Investors Need More Meaningful Risk Measures

By Dan Hallett, CFA, CFP on July 22nd, 2015

The measurement and communication of risk for investment funds is high on securities regulators’ radar. They continue to review this important issue and we’re awaiting their final decision. It’s striking how many years have passed, yet the industry continues to debate many of the same issues. In 1997, I started working for a firm that was trying to move the industry away from opaque... Read More

Pros and Cons of Robo-Advisors: Are They Here to Stay?

By Dan Hallett, CFA, CFP on June 29th, 2015

Much has been written about newer investment advisory firms that dispense advice through user-friendly websites, called Robo-Advisors. This new breed of advisory firms offers many potential benefits but also faces many headwinds. Potential Benefits of Robo-Advisors Dealing with an advisor face-to-face can sometimes be intimidating, which can act as a barrier to obtaining advice. Leveraging the... Read More

Focus on meeting your goals not on investment debates

By Dan Hallett, CFA, CFP on May 4th, 2015

ETFs vs. mutual funds. Indexing vs. active management. Industry professionals and investors alike have staked their respective turfs on each of these issues with a level of passion usually reserved for religious or political debates. Yet breaking down each issue’s most important components shows that most are focused on the wrong factors. Indexing vs. Active management Indexing is an... Read More

Some Advisors Behaving Badly with CRM2 on the Horizon

By Dan Hallett, CFA, CFP on March 16th, 2015

After mid-July 2016, CRM2 will require investment dealers to report personalized performance, charges and commissions annually to each client. To their credit, many dealers are now providing performance reports. But two disturbing trends are brewing beneath the surface in an effort to skirt the reporting of charges and commissions. Escaping Securities Regulation Compliance obligations of... Read More

Go global instead of slicing & dicing your stocks by region

By Dan Hallett, CFA, CFP on December 23rd, 2014

In a recent article, Globe and Mail columnist Rob Carrick tackled the important issue of global stock diversification.  He surveyed several investment advisors and portfolio managers for their recommended allocations between Canadian and non-Canadian stocks.  Carrick makes many good points - e.g., reminding readers of past investor mis-behaviours and how current fund flows could be repeating... Read More

It is time to prepare for the bear

By Dan Hallett, CFA, CFP on November 26th, 2014

All year I've been wanting to write an article urging advisors and individual investors to prepare for the next bear market.  When stock markets hit a pothole in late summer and early fall, it struck me as an opportune time to refresh this idea.  While markets have since quickly moved past the decline, I was struck at the amount of attention given to what I thought were normal stock market... Read More

Do-it-yourself investors must plan for investments after death

By Dan Hallett, CFA, CFP on October 31st, 2014

Many DIY investors act as 'family money managers'.  Most that I've met are men married to spouses with little or no interest in investing.  These DIY investors often risk predeceasing their novice-investor partners.  So with many issues to deal with post-death, these DIY investors should consider how to plan the transition of portfolio management duties after they depart this life. Many... Read More

Are you chasing an investment celebrity or the superior money manager?

By Dan Hallett, CFA, CFP on October 17th, 2014

So-called 'Bond King' Bill Gross made headlines with his recent decision to leave PIMCO - the firm he founded more than 40 years ago - to join Janus Capital Group.  How best to deal with manager changes and whether investors and advisors should follow the departed stars or stick with incumbent funds have long been debated.  In light of Gross' departure, investors and advisors need to remember a... Read More

CalPERS’ hedge fund decision offers important lessons

By Dan Hallett, CFA, CFP on September 26th, 2014

The California Public Employees' Retirement System - aka CalPERS - announced plans to liquidate its $4 billion hedge fund portfolio.  It's big news because CalPERS is considered a well-run pension plan.  It's huge - at nearly $300 billion USD - and it was one of the first pension plans to invest in hedge funds.  Investors and advisors could learn a thing or two from CalPERS' latest... Read More

Beware of aggressive investment product marketing

By Dan Hallett, CFA, CFP on August 18th, 2014

Aggressive marketing of investment products is nothing new.  Throughout my career I have expended plenty of energy pointing out what I believe to be misleading or overly aggressive marketing initiatives and advertisements.  More than four years ago I posted an article highlighting one fund's sales incentive and another's misleading benchmark comparison.  I have also focused quite a lot of... Read More

Market-linked GIC looks good on surface but fails scrutiny

By Dan Hallett, CFA, CFP on August 8th, 2014

A prospective client recently brought an index-linked guaranteed investment certificate (GIC) to our attention - an investment that he found very attractive.  He asked for our thoughts on this product.  This GIC that pays interest linked to the S&P/TSX 60 Index performance over 3- or 5- year terms. While it uses an averaging formula to compute returns, it has no maximum participation in... Read More

Illiquidity may be floating rate funds’ biggest risk

By Dan Hallett, CFA, CFP on July 30th, 2014

Floating Rate Debt (FRD) is getting an increasing amount of attention.  Over the past year, several new products have been launched focusing on floating rate debt such as leveraged loans and so-called senior loans.  All pay floating rates of interest - a feature that is too heavily promoted for my liking - while offering juicy yields to entice investors.  The marketing of such funds is... Read More

Expect more distribution cuts from monthly income funds

By Dan Hallett, CFA, CFP on July 9th, 2014

I have been writing about Monthly Income funds for more than a dozen years.  In my 20-year career, none of my articles or comments have generated as much feedback (or as much anger) as my critiques of Monthly Income funds.  Capital market activity has made distributions less sustainable than they were a year ago.  Many funds have quietly reduced distributions while others have been more... Read More

Regulatory initiatives may not solve this fee transparency problem

By Dan Hallett, CFA, CFP on June 18th, 2014

Securities regulators have a lot on the go.  Among the many proposed regulations is the requirement for financial advisors to show clients how much they pay in fees and the amount of commissions they collect from the client's investments.  I applaud regulators' efforts because all of these initiatives are aimed at increasing transparency for clients.  But a recent exchange with a prospective... Read More

Fund risk rating change highlights need for reform

By Dan Hallett, CFA, CFP on April 4th, 2014

I have written many times over the past several years about the shortcomings of the prevailing method of assessing and communicating risk to mutual fund investors.  It's a non issue for HighView's business so I'm careful not to spend much time on the issue.  But I felt strongly enough about this to make a personal submission to regulators to share my thoughts on this important issue.  A recent... Read More

PIMCO Global Income Opportunities: enthusiasm vs reality

By Dan Hallett, CFA, CFP on March 27th, 2014

Tom Bradley just posted a smart analysis of a new closed-end fund.  PIMCO's newly-launched Global Opportunities Income fund attracted $600 million - the top end of its target.  That's a very warm reception to say the least.  I won't repeat Tom's excellent analysis but would like to expand on a couple of points he made. Higher return = higher potential risk The fund is targeting a... Read More

Making sense of experts’ picks for your RRSP

By Dan Hallett, CFA, CFP on February 28th, 2014

There are seemingly more 'experts' picks' columns for the first 60 days of this year (i.e. RRSP season) than in previous years.  In the Globe & Mail alone over the past month, there have been 5 articles giving readers ideas interested in stocks, exchange-traded funds (ETFs) and mutual funds.  Other publications have run similar columns.  Among the flurry of recommendations, it's important... Read More

Smart Beta needs to come out of the closet

By Dan Hallett, CFA, CFP on February 9th, 2014

With the 2000s’ ballooning list of indexing products I was compelled to give indexing hopefuls a dose of straight talk nearly five years ago.  My message then:  To fully capture indexing’s long-term benefits investors should simply focus on obtaining the broadest exposure possible at the lowest available cost.  I doubt that index investors have since embraced that advice, evidenced by the... Read More

Should you follow your fund’s ‘star manager’?

By Dan Hallett, CFA, CFP on January 16th, 2014

Mutual fund companies have a love-hate relationship with so-called “star fund managers”.  The love stems from such managers’ typically strong performance and their ability to tell good stories about how they invest clients’ money. Both factors foster a loyal following from financial advisors and their clients.  But there is no love lost when the star disappoints or, worse, leaves... Read More

Check up on financial advisors before hiring them – it’s easier than you think

By Dan Hallett, CFA, CFP on January 10th, 2014

Financial advisor titles are generally unregulated in Canada (Québec being the exception).  Designations – denoted by the letters after advisors’ names on their business cards – can be downright confusing.  Some are earned only after a few years of relevant experience and a rigorous educational program while others are granted after just a few days of classroom study. Fortunately, the... Read More

My 2014 New Year’s ‘financial’ resolutions

By Dan Hallett, CFA, CFP on January 3rd, 2014

As the calendar turns to another year, I've wasted no time thinking about resolutions that will help improve your chances for successful wealth management and investment management in 2014 and beyond.  Even if you commit to just a few of these resolutions, you'll be far better off in the new year. I will seek out investment advice from firms that act as fiduciaries thereby avoiding the... Read More

Avoid these missteps to be a better investor in 2014

By Dan Hallett, CFA, CFP on December 19th, 2013

My recent review of many investors' portfolios prompted the saying "the more things change, the more they stay the same" to keep ringing in my mind.  With a new year quickly approaching, investors would do themselves a favour by resolving to avoid some of the portfolio weaknesses I've noticed of late.  Doing so is bound to make for smarter investors.  Here are a few of the themes that have... Read More

Five years on – the lesson from market extremes

By Dan Hallett, CFA, CFP on November 20th, 2013

Five years ago today, the investing world was frozen with fear.  Stocks markets had collapsed; Lehman Brothers had slid into bankruptcy several weeks earlier; and discussions were accelerating regarding letting GM and Chrysler do the same.  Fear was abundant and nobody was in the mood to rebalance their portfolios to buy more stocks, which were still in a free-fall.  And on that day, I was... Read More

Performance reporting is advice industry’s biggest challenge

By Dan Hallett, CFA, CFP on November 19th, 2013

The financial advisory industry has long been challenged to report accurate, personalized performance to its clients.  Investment management clients have always wanted good reporting but most retail clients didn’t require it because returns seemed healthy.  But having survived two bear markets, investors have grown disappointed with their portfolios’ growth even without knowing percentage... Read More

Senior Investors & Suitability Panel Discussion

By Dan Hallett, CFA, CFP on October 17th, 2013

This week, I attended the MFDA's Seniors Summit conference to participate in a panel discussion.  We tackled several questions pertaining to senior investors and suitability.  My esteemed co-panelist Tom Bradley didn't disappoint and shared many terrific insights.  While the audience was strictly limited to MFDA supervisory staff, I thought both advisors and investors might be interested in... Read More

Industry risk rating failing investors of floating rate note funds

By Dan Hallett, CFA, CFP on September 17th, 2013

Floating rate note (FRN) funds are gaining in popularity because of their marketed 'promise' to protect capital during periods of rising interest rates.  In Canada since the mid-2000s, FRN funds invest mainly in corporate loans bearing a fluctuating interest rate.  They appeal to investors who fear rising interest rates - which is most - but offer competitive current yields. Investors... Read More

Predictions, Stocks Markets & the Weather Rock

By Dan Hallett, CFA, CFP on July 29th, 2013

I had the pleasure of dining with a group of friends recently at one of the fine wineries along Lake Erie.  Near the entrance was a rock hanging from a chain - i.e. a "weather rock".  One of our friends explained how it works.  When it's wet, there is rain.  When it's white, it's snowing.  And when it's swinging, it's windy. Noting that it's easy to predict the past, another astute member... Read More

Stock pickers’ markets a myth for retail investors

By Dan Hallett, CFA, CFP on July 17th, 2013

Whenever the notion of a volatile sideways market bubbles up among portfolio managers, they claim indexing will fail in comparison to active stock selection.  In other words, portfolio managers argue that trendless volatility is ripe for active management skill to shine.  They call it a stock pickers' market.  I call it a myth for retail investors. Managers outperform before fees For the... Read More

This fund is unlikely to sustain its newly-lowered monthly payout

By Dan Hallett, CFA, CFP on May 23rd, 2013

I have been writing articles in the public domain for more than 13 years.  No series of articles has generated more interest or feedback than my many critiques and analyses of monthly income fund and assessing distribution sustainability.  Below is an edited version of the latest note from a reader named Derek with a link or two added: In follow-up to your articles on T-series mutual funds... Read More

The active passive investor

By Dan Hallett, CFA, CFP on May 9th, 2013

Many years ago an investor's default investment strategy - in the absence of an advisor's involvement - was to invest in GICs or Canada Savings Bonds.  Today, the more affluent investor's default strategy is - increasingly - indexing, inspired by the likes of John Bogle, Charles Ellis and William Sharpe.  But I have often found that indexing advocates implement strategies that are quite a... Read More

A sense of history will help to interpret small cap return rankings

By Dan Hallett, CFA, CFP on April 11th, 2013

When asked recently to examine a portfolio manager's track record, I was reminded of how careful one must be with performance rankings.  In this case, I was assessing the strong five-year run of a Canadian Small/Mid Cap Equity manager.  It didn't take long to see that knowing the evolution of today's small/mid cap mandates is critical to making an informed assessment. Evolution of Income... Read More

BMO reins in fund distributions

By Dan Hallett, CFA, CFP on March 21st, 2013

I have been writing about monthly income investment funds for nearly a dozen years, putting their distributions to the test and highlighting such funds' mythical tax advantages.   Over the past two years, I've been particularly critical of the BMO Monthly Income fund.  So I was pleased to discover that BMO is making some positive changes to the fund and its Global sibling. Spring... Read More

The upside of manager turnover

By Dan Hallett, CFA, CFP on March 8th, 2013

When key people leave a money management firm, it is often cause for concern - particularly when key personnel leave in packs.  While one of my older blog posts laid out a framework for dealing with changes in lead managers, it's also helpful to recognize when change is positive.  This can only be confirmed in hindsight but two recent manager changes seemingly bode well for investors going... Read More

Want to scratch your market timing itch? Try some disciplined rebalancing

By Dan Hallett, CFA, CFP on February 15th, 2013

Many investors feel better about their investments when their advisor is fine-tuning their portfolios.  The persistence of global macroeconomic challenges has strengthened this long-standing desire among many clients.  While so few are skilled market-timers, perhaps a sensible and disciplined rebalancing method can scratch that market timing itch while controlling risk. Many mutual funds set... Read More

Biggest controversy with financial advisor commissions has nothing to do with advisors

By Dan Hallett, CFA, CFP on January 21st, 2013

Type the phrase "financial advisor commissions" into Google and the results will be less than flattering to the financial advice industry.  Understandably, regulators and the media are focused on full service brokers or financial advisors when this issue arises.  But there is a good reason for both parties to cast their eyes on another closet door concealing a well-kept secret. Advisor... Read More

Low bond yields make for tough decisions

By Dan Hallett, CFA, CFP on December 26th, 2012

I have been involved in several client proposals and meetings over the past several weeks.  A common thread continues to emerge in most cases.  Since bonds are needed to limit total portfolio risk, they also limit potential total returns.  And this is causing investors to have to choose whether risk or return is more important. Total Returns Near the middle of this year, I laid out the... Read More

Bond bears’ growl is all noise

By Dan Hallett, CFA, CFP on December 17th, 2012

Type the phrase "bond bear market" into Google and you'll see a long list of articles proclaiming the certainty of the oncoming bear market in bonds.  I agree that bond yields are artificially low and that bonds are expensive relative to stocks.  But I don't agree with some of the fundamental arguments in favour of abandoning bonds altogether. Rates must rise Without failure, for my... Read More

Private REITs require careful due diligence

By Dan Hallett, CFA, CFP on December 6th, 2012

The Globe and Mail shed a bit of light on the small universe of private real estate investment trusts (REITs) in Canada.  The article touches on both the benefits and perils of this emerging product segment.  I recently reviewed a Canadian private REIT, the highlights of which underline the critical importance of proper due diligence. Brains, the body and conflicts of interest I won't... Read More

Income trust fans have no reason to cry

By Dan Hallett, CFA, CFP on November 5th, 2012

For many income-oriented investors October 31, 2006 will forever be etched in their brains.  That was the day that our Federal Finance Minister lowered the tax boom and ended the tax arbitrage of income trusts.  The market reacted by slicing about 17% from market prices of trusts to reflect the tax impact of the announcement.  Despite the massive outcry at the time - and since - it's hard to... Read More

50 may be the new 40 but ETFs are the new Mutual Funds

By Dan Hallett, CFA, CFP on September 25th, 2012

For years I've been hearing from individual investors and financial advisors who are disappointed with their meagre long-term performance.  This jibes with calculations I completed four years ago, which showed that Canadian mutual fund investors largely missed out on the available risk premium over nearly 15 years prior to the worst of the last bear market (as illustrated in this chart). As... Read More

A simple but successful actively managed portfolio

By Dan Hallett, CFA, CFP on September 17th, 2012

Fifteen years ago, writer and broadcaster Alison Griffiths asked University of Toronto professor Eric Kirzner to create what was named the 'Easy Chair Portfolio'.  The goal was to create a simple portfolio structure that provided passive exposure to 'market returns' and could be left without tinkering for decades. In a recent article, Griffiths provided an update on this 15-year-old... Read More

Covered-call funds haven’t delivered the goods

By Dan Hallett, CFA, CFP on September 7th, 2012

Covered-call writing is an investment strategy that promises significantly lower risk with little or no give-up in return potential.  But I argued in a recent post that the odds were fundamentally against investors realizing this potential since I expected the risk reduction to be insufficient to make up for the forgone upside.  And a look at real life portfolios executing this strategy... Read More

Covered-call strategy offers no free lunch

By Dan Hallett, CFA, CFP on July 24th, 2012

Extra-lean bond yields are prompting investors to reach for yield with corporate, high yield and emerging markets bonds.  Their appetite for stocks is meagre overall but investors still hunger for those that regularly spit out cash - sometimes using them as bond replacements.  As for investment funds, my keyboard is almost too tired to type out the phrase monthly income fund but their... Read More

Webinar: ETF Portfolio Construction

By Dan Hallett, CFA, CFP on June 25th, 2012

Last week, I spoke about constructing portfolios using exchange-traded funds (ETFs) to a group made up mostly of financial advisors.  Investment Executive hosted the June 19 webinar and they archived the entire presentation and question period on their website. I was a bit time-constrained so my presentation quickly gets to a few sample portfolios, which is the focus of my talk.  Ideally,... Read More

Desperately seeking income

By Dan Hallett, CFA, CFP on June 21st, 2012

The Globe and Mail recently reported that Michael Lee-Chin was planning a return to the retail investment industry.  He has spoken specifically about his desire to bring institutional private equity exposure to retail investors in Canada.  It's a good idea on the surface but a look into similar past efforts might make investors and their advisors a bit cynical pending further details. ... Read More

A balanced portfolio’s expected returns

By Dan Hallett, CFA, CFP on June 11th, 2012

I recently provided the Globe & Mail's Rob Carrick with my long-term expectations for investment returns and inflation over the next decade.   With the exception of a couple of outliers - one bull, one bear - I admit to being surprised by the convergence of the dozen estimates.  I thought it worthwhile to provide a bit more context to the summary featured in the article and to past return... Read More

Facebook IPO separates investors from speculators

By Dan Hallett, CFA, CFP on May 23rd, 2012

Like many, I have been watching the Facebook public market debut and post-IPO activity with great interest.  While watching from the sidelines I came across an article regarding regulatory inquiries about what went wrong with the overhyped IPO. There may be some real regulatory concerns.  But it's interesting that the undertone of some articles suggests that Facebook's falling price is... Read More

Star manager start-ups – due diligence considerations

By Dan Hallett, CFA, CFP on April 29th, 2012

Some retail mutual fund companies are traditional money management firms that have a single guiding investment philosophy driving the management of all client portfolios - and the in-house firm is the only manager of the funds on offer.  Others have no in-house money management firm.  Instead, they seek out external portfolio managers to make day-to-day investment decisions for the firm's... Read More

The unintended lifetime commitment

By Dan Hallett, CFA, CFP on March 29th, 2012

When entering a marriage, it’s a bad sign if you start planning your exit before vows are ever exchanged.  While many of life’s lessons extend to the world of investing, the exit strategy is a notable exception.  Unlike in marriage, investors should spend more time contemplating their exit strategy to help avoid the unexpected liquidity trap. Labour sponsored funds A lucky contingent of... Read More

Four things to keep in mind in this low-rate environment

By Dan Hallett, CFA, CFP on March 1st, 2012

For those seeking a safe and dependable income source, today's painfully low interest rates pose a real challenge.  Bank of Canada Governor Mark Carney regularly reminds us that persistent low rates can be dangerous because they incent excessive borrowing.  But low rates also pose some risk to the asset side of investors' balance sheets.  It looks like low rates will be here for a while so... Read More

Look past emerging markets bond funds’ sales pitch

By Dan Hallett, CFA, CFP on February 8th, 2012

I was quoted in a recent Globe & Mail article warning that higher yields available in emerging markets bonds (compared to Canada bonds) come with additional risk.  Given that the investment fund industry has launched several emerging markets bond funds and exchange traded funds in recent years, it's worth putting my comments and this growing class of funds into context. Canada's first... Read More

Active or passive? Process, not politics, should drive choice of strategy

By Dan Hallett, CFA, CFP on January 24th, 2012

The National Post's Jonathan Chevreau recently asked me and a few other financial professionals how we plan to invest this year's tax-free savings account contribution.  The way my reply was framed may have given a somewhat different impression than intended.  But it also touches on a common misconception. The active-passive continuum The article correctly quoted my plan to add to my... Read More

Should you hold bonds in taxable accounts?

By Dan Hallett, CFA, CFP on January 6th, 2012

An investor’s asset allocation strategy refers to how money is divided across different classes of investments – i.e. stocks, bonds and cash. An asset location strategy, however, drills down a level deeper and deals with “where” or in which accounts to hold your chosen stocks, bonds and cash. Today’s bond yields might prompt some investors to challenge conventional asset location... Read More

Does dollar cost averaging boost or hinder performance?

By Dan Hallett, CFA, CFP on December 20th, 2011

In response to many fee-bashing articles of late, I recently urged both the media and the investment industry to broaden the focus to not only fees but also other less obvious performance drags that are tougher to control. To explain one factor I stated that dollar cost averaging (i.e. regularly investing a set amount) usually hinders performance due to volatility. Since that’s contrary to... Read More

Mutual fund critics missing the big picture

By Dan Hallett, CFA, CFP on December 13th, 2011

Every time markets bleed red, mutual fund investors and the media become much more price-sensitive. So it’s no surprise that print media have featured a barrage of anti-fee articles.  (See the National Post on December 6 and the Globe & Mail December 5 and December 9 articles.)  Interestingly, Canada's two national papers have united in a recent Investors Group bash-fest (see this... Read More

NFL champs’ owners ante up for the experience not the profits

By Dan Hallett, CFA, CFP on December 6th, 2011

Today sports fans may be able to fulfill one of their dreams for a mere $275 USD.  Starting December 6 Green Bay Packers, Inc ("GBP"), the corporation that owns the reigning NFL champions of the same name, starts selling at least 250,000 "common shares" to the public at a price of $250 per share (+ $25 administrative fee - all in USD).  Despite selling the shares via an offering document, this... Read More

Don’t overlook the basics of hedge fund due diligence

By Dan Hallett, CFA, CFP on November 27th, 2011

The Ontario Securities Commission recently issued an order in the ongoing matter of Sextant Capital Management, a defunct hedge fund company.  While the order pertained to a law firm wanting to remove itself from representing Sextant and its former principals, it reminded me that it's too easy to overlook basic steps when doing hedge fund due diligence. Unlike my experience with Portus, I... Read More

Borrowing to invest in high-payout funds: a numerical example

By Dan Hallett, CFA, CFP on November 17th, 2011

My last post on the perils of investing in high-payout funds with borrowed money sparked a lot of questions and a bit of confusion around the tax rules and associated risk.  In this post, then, I thought it would be helpful to run through a numerical example to illustrate what I wrote about last time. Illustration Assumptions For my illustration, I assume that an investor borrows $100,000... Read More

Leveraging + High Payout Funds = Unhappy Ending

By Dan Hallett, CFA, CFP on November 7th, 2011

The final chapter to the series of articles I've written this year on high-payout investments funds features leveraging.  Over the past few years, I have been contacted by several individual investors and financial advisors about strategies they've been proposed or have seen in use involving borrowing to invest in funds that pay out fat monthly distributions.  Every inquiry I received described... Read More

BMO Monthly Income sets the distribution bar unreachably high

By Dan Hallett, CFA, CFP on October 20th, 2011

This week the Globe and Mail's John Heinzl took another run at a favourite fund of mine - BMO Monthly Income.  It's not my favourite fund for investment but rather a favourite to write about.  In his recent article, Heinzl points out that the fund's hefty monthly cash payout - now equal to more than 9.5% annualized net of fees - has been well above the fund's longer-term returns. Earlier... Read More

Want lower fund fees? Vote with your wallet

By Dan Hallett, CFA, CFP on October 3rd, 2011

The mutual fund industry seems to be under the microscope on a regular basis.  That's partly a function of its size.  But, to be fair, it's also because the industry has earned criticism for its commission structures, high fees and proliferation of gimmicky products.  The issue of fees is the subject of perpetual debate.  A recent letter by FAIR Canada has pushed the hot-button yet again. A... Read More

Investing like a minimalist can make you happier & wealthier

By Dan Hallett, CFA, CFP on September 16th, 2011

A 'minimalist' lifestyle usually refers to living only with the basics.  The less 'stuff' you have, the less you have to worry about day-to-day and the happier you will be, say proponents.  Perhaps you can't part with your new smart phone, your second car or the notion of home ownership.  But I am convinced that adopting minimalist-like investing style would set most investors on the path of... Read More

Is the bond market flashing the recession sign? Should we care?

By Dan Hallett, CFA, CFP on August 23rd, 2011

Neither I nor our firm makes high level calls on the economy.  We refrain from peering into our crystal ball in part because the best time to invest is often when the economic news and data are seemingly at their worst.  But that doesn't mean we ignore economic sign-posts.  I found data for one such indicator - the steepness of the U.S. yield curve - courtesy of my friend and value... Read More

Putting funds through the bear market test

By Dan Hallett, CFA, CFP on August 4th, 2011

The Globe & Mail's Rob Carrick recently wrote about the lessons learned from those investments that lost the most in calendar 2008.  One of his most important points is in the very first sentence where he wrote,  "Never buy an investment product without first checking how it performed in 2008".  There are a couple of items related to this sound advice that are worthy of a more... Read More

Should the number of bets affect confidence level in a manager’s value-added?

By Dan Hallett, CFA, CFP on July 29th, 2011

In this morning's Globe & Mail, Shirley Won has an article on portfolio manager Noah Blackstein.  While yours truly is quoted in this piece, I mention it here because the article touches on a topic that I've been mulling for some time. Historical value-added In the article I commended Blackstein for his excess returns (above his benchmarks) over his tenure, which includes two bear... Read More

Fund Facts a good start, but risk rating & suitability get thumbs-down

By Dan Hallett, CFA, CFP on July 13th, 2011

A new regulatory initiative - i.e. Mutual Fund Point of Sale - was launched this year in an attempt to better inform investors about the investment funds in which they invest.  The key feature of this Point of Sale initiative was to provide an investor-friendly 2-4 page document called Fund Facts summarizing each fund's most important information.  The idea was based on the observation that... Read More

The relevance of YTM & the impact of rising rates

By Dan Hallett, CFA, CFP on July 7th, 2011

Last week, I wrote about not reading too much into distributions paid by bond mutual fund and bond exchange-traded funds.  I admit to being surprised by the sensitive chord this struck with many investors.  In the spirit of brevity and focus, I glossed over some finer details pertaining to bond yields.  So, this week, I delve a bit deeper into a few issues that emerged from the many public and... Read More

Distribution rate does not equal yield

By Dan Hallett, CFA, CFP on June 26th, 2011

It's easy to be seduced by what appears to be a proverbial 'free lunch' in the investment world.  Nowhere is this more prevalent than in the world of fixed income (i.e. bonds and bond-like investments).  There are many potential topics to tackle in this context.  But perhaps the most common misunderstanding I notice among investors emerges when equating monthly distributions with true... Read More

Swinging for the fence is not a sustainable wealth strategy

By Dan Hallett, CFA, CFP on June 18th, 2011

Some of my partners and I recently met with investors that have some commonalities pertaining to how they built their significant wealth.  Each of these investors, through a combination of hard work and good fortune, amassed significant wealth by making concentrated bets in relatively few stocks.  No doubt we've all heard stories about how somebody's father or grandmother stock-piled shares of... Read More

Vanguard’s Canadian launch no guarantee of an all-out price war

By Dan Hallett, CFA, CFP on June 6th, 2011

Late last week, the media was buzzing about indexing giant Vanguard's entry into the Canadian investment fund market.  (See today's Globe & Mail and National Post for related stories.)  Today, Vanguard officially announced the birth of Vanguard Investments Canada Inc and its plans to officially launch investments funds for this market.  While Vanguard is likely to exert price pressure in... Read More

Monthly Income funds’ payout sustainability – the sequel

By Dan Hallett, CFA, CFP on May 31st, 2011

Earlier this year, I wrote about how to gauge the sustainability of monthly income funds' fat distributions so that investors and advisors could make better decisions and set realistic expectations.  Since then, I've received a steady stream of phone calls and emails, mostly expressing concern over many funds.  However, one fund in particular keeps popping up in such inquiries, so I thought it... Read More

Be careful when comparing real estate fund returns

By Dan Hallett, CFA, CFP on May 29th, 2011

Real estate has long formed the core of investors' hard asset exposure.  Individuals and institutions invest in real estate for many reasons - i.e. diversification, cash flow and/or inflation protection.  As with asset classes beyond the basic (stocks, bonds and cash), investors are challenged to implement what is a sound theory. Current landscape of real estate funds At one time, there was... Read More

Rebalance for long-term risk control not to boost returns

By Dan Hallett, CFA, CFP on May 19th, 2011

The Globe & Mail recently ran an article on rebalancing, featuring comments and opinions from some industry giants.   The article ends with advice from John Bogle, who suggests that rebalancing is a personal choice.  He discourages the practice because of the costs involved (i.e. brokerage fees + taxes).  But perhaps it's worth adding some context to this often-discussed topic. The... Read More

Simplicity is key to analyzing complex products

By Dan Hallett, CFA, CFP on May 11th, 2011

In the May 2011 issue of Investment Executive, I wrote about how I approach the analysis of complex products.  In short, when analyzing products - particularly complex offerings - the most insight is often obtained via the simplest analysis. To illustrate, I tell the story of how I approached Portus back in the fall of 2004.  I never spoke with the company.  I never delved into their... Read More

Dealing with lead manager changes

By Dan Hallett, CFA, CFP on May 4th, 2011

There has been a recent flurry of changes in mutual fund lead managers.  This is partly the result of industry consolidation - as managers become disenchanted with asset-gathering behemoths.  In other cases, money managers want to scratch their entrepreneurial itch and strike out on their own.  Whatever the trigger, change is a fact of life.  And money managers turn over on a regular... Read More

Does DALBAR really calculate investor returns?

By Dan Hallett, CFA, CFP on April 16th, 2011

I recently received an e-mail about a blog post questioning the validity of DALBAR's annual study of investor returns - Quantitative Analysis of Investor Behaviour.  The blog post - DALBAR study overstates investors' bad timing - takes aim at DALBAR's methodology.  And while it makes some good points, the blog actually misses the bigger hole in DALBAR's methods.  But more on that in a... Read More

Guidance for VenGrowth LSIF shareholders

By Dan Hallett, CFA, CFP on April 1st, 2011

Last fall, GrowthWorks launched a very public campaign to win the takeover battle for the VenGrowth family of labour sponsored investment funds (LSIFs).  VenGrowth's preferred offer was from Covington II Fund but I thought that VenGrowth's board didn't look hard enough for potential buyers.  In the end, the deal was killed. Early this year, VenGrowth (VG) launched round two of its attempt to... Read More

Proper due diligence can counter the lure of triple-digit returns

By Dan Hallett, CFA, CFP on March 1st, 2011

I was recently asked to comment for an article on a small, top-performing mutual fund - Redwood Global Small Cap.  While the article included a couple of my comments, there was no room for some of the more striking statistics I found when doing a quick review of the fund's filings.  But the quick review I did could also serve as a guide to where to start when beginning to research a product for... Read More

Trend of decreased transparency a lose-lose

By Dan Hallett, CFA, CFP on February 16th, 2011

Valentine's Day is a day to celebrate love.  But on February 14, 2011, I wasn't feeling the love from the mutual fund industry.  On that day, the Investment Funds Institute of Canada announced that it would cease reporting company-specific sales data every month to the public.  It will, however, continue making this information available to members and statistics subscribers.  Some fund... Read More

LSIFs and hedge funds with training wheels

By Dan Hallett, CFA, CFP on February 14th, 2011

I was recently asked to comment on Labour Sponsored Investment Funds (LSIFs) by the Canadian Press.  The words attributed to me in this article may give readers the wrong impression.  The article says, in part: Hallett said these funds are most attractive to higher income earners and those with long investment time horizons because of the long locked-in period. He urges people to limit their... Read More

Investing for retirement

By Dan Hallett, CFA, CFP on February 8th, 2011

In Tuesday's Globe & Mail, I shared a couple of suggestions that investors should consider for their RRSPs.  My suggestions covered two themes you'd have read here over the past several months.  One is that bonds remain a vital, albeit boring, portfolio component - hence my recommendation of a bond fund.  The recommendation of a global stock fund touches on a thorny issue today - namely... Read More

R.I.P. Peter Cundill

By Dan Hallett, CFA, CFP on January 27th, 2011

I had received a couple of calls this week telling me that Peter Cundill had passed away.  This was confirmed today when another contact today sent me his online obituary.  Peter suffered from a debilitating disease called Fragile X, the symptoms of which are quite ironic given how cerebral and physically active he was.  I didn't know him personally but by all accounts he was one of the good... Read More

Putting monthly distributions to the test

By Dan Hallett, CFA, CFP on January 12th, 2011

I don't make many bold predictions.  But nearly a decade ago I did just that in this article.  I challenged the most popular monthly income mutual fund of the day, now known as IA Clarington Canadian Income (now called IA Clarington Strategic Income Fund Y).  I stated that this balanced fund's 10% distribution rate at the time could not be sustained and would have to be cut.  No... Read More

Facebook’s quasi-IPO raises regulatory & valuation concerns

By Dan Hallett, CFA, CFP on January 4th, 2011

The financial media are abuzz about Goldman Sachs' $450 million common share investment in Facebook for a tiny piece of the popular company.  As I read a few reports of this latest round of financing, it occurred to me that Goldman bought more than a pile of common shares, that this deal could spur new regulations and Facebook's implied valuations gave me a bout of déjà vu. What did... Read More

A sense of history helps to assess past performance

By Dan Hallett, CFA, CFP on December 29th, 2010

In the Globe and Mail recently, Shirley Won screened for the best and the worst among U.S. equity funds for the decade through November 30, 2010.  A couple of funds on the list struck me as worthy of further comment, which point to the need to dig beneath the numbers.  The first step in this endeavour is simply knowing a fund's history.  For instance, among the list of worst performers... Read More

Adding value to ETF portfolios

By Dan Hallett, CFA, CFP on December 16th, 2010

In an April 2010 post, I wrote of the challenges advisors face when using ETFs as the product solution for constructing client portfolios.  In the May 2010 issue of Investment Executive, I turned around and touched on advisors' potential sources of value-added with respect to ETF portfolios. In a current Investment Executive video, I speak to the challenging balancing act that advisors must... Read More

Don’t forget bonds

By Dan Hallett, CFA, CFP on December 15th, 2010

There is an interesting dichotomy at play today in retail investment circles.  Individual (i.e. retail) investors are clamouring for bonds and bond funds since the wounds from the 2007-09 bear market remain fresh while bonds have been a haven.  Financial advisors - already an equity oriented contingent - are increasingly buying the industry's pitch to ditch bonds in favour of equities.  But... Read More

All synthetic bond funds are not equal

By Dan Hallett, CFA, CFP on December 10th, 2010

In the December issue of Investment Executive, I wrote about synthetic bond funds.  I couldn't mention them by name in that article, but I used a couple of new Franklin Templeton synthetic bond funds to illustrate that not all new products of this type are worthwhile.  The two funds referred to are Templeton Global Bond Hedged Yield Class and Bissett Canadian Short Term Yield Class.  I found... Read More

Don’t get too cozy with your investments

By Dan Hallett, CFA, CFP on December 9th, 2010

Various media ran an article today proclaiming that investors are more confident in 2010 compared to a year ago.  While I always scratch my head at such articles, I can also understand that investors feel better when the investments they're buying rise in price.  But unlike with retail goods, investors don't have the same aversion to 'expensive' investments.  While there remain many good... Read More

Do financial advisors add value?

By Dan Hallett, CFA, CFP on November 29th, 2010

In the November 2010 issue of Investment Executive I reviewed a few different academic papers that attempted to answer the question gracing the title of this blog post.  Unfortunately, space constraints precluded me from detailing the titles of the papers and the names of the authors.  So, below I've detailed and linked to the three papers referred to in the above IE article - in their order of... Read More

Did VenGrowth funds’ boards cast a wide-enough net?

By Dan Hallett, CFA, CFP on November 21st, 2010

The battle over the handful of VenGrowth labour sponsored investment funds and the New Generation Biotech LSIF is getting interesting.  (See our initial overview if you're new to this story.)  It's tough to say which way the vote will go but a couple of recent developments indicate that VenGrowth is worried that its preferred deal will be shot down. VenGrowth has repeatedly stated that... Read More

GrowthWorks launches battle for VenGrowth funds

By Dan Hallett, CFA, CFP on November 12th, 2010

The recently announced deal reached by Covington Fund II Inc. and all of VenGrowth's retail labour sponsored investment funds (LSIFs) has sparked a bit of controversy and attracted another party into the mix.  The Covington-VenGrowth deal, announced recently, would see all VenGrowth LSIFs merged into the Covington Fund II Inc. The controversy Since VenGrowth Capital Management (VCM) would be... Read More

Did VentureLink warn that ‘capital repayment’ feature was no guarantee?

By Dan Hallett, CFA, CFP on November 5th, 2010

In a recent Globe and Mail column, Shirley Won wrote about how investors in VentureLink 'capital repayment' labour sponsored investment funds are not getting their capital back.  The article quoted a financial advisor - who bought the funds for himself and his clients - who is upset that VentureLink isn't holding up its end of the bargain.  One could argue, however, that this is simply a case... Read More

Volatility measures behavioural risk

By Dan Hallett, CFA, CFP on October 18th, 2010

In his latest Globe & Mail column, Tom Bradley discussed risk and volatility.  Modern finance theory uses volatility, or more formally standard deviation, as its measure of risk largely because it is an easy statistic to use in quantitative modeling.  Volatility measures how far an investment's returns move away (or deviate) from its average based on its daily, weekly or... Read More

A closer look at BetaPro’s dirt cheap ETF

By Dan Hallett, CFA, CFP on October 5th, 2010

In a recent blog post, I provided an overview of the new Horizons BetaPro S&P/TSX 60TM Index ETF (HXT/TSX).  HXT’s synthetic exposure left us with two questions, both of which are addressed below. What’s in it for National Bank? This has been an often-asked question since HXT was launched.  Previously, funds using forward or swap contracts have been used to obtain exposure to a... Read More

Canadian regulators unlikely to ban commissions

By Dan Hallett, CFA, CFP on October 3rd, 2010

I have been asked more than a few times by advisors whether I think product commissions will be banned.  While we can never say never, I've had enough questions on this to warrant an article.  In the October issue of Investment Executive, I highlight three reasons why I think we're unlikely to see a commission-ban similar to plans unveiled in Britain and Australia. This was my view before... Read More

ETF industry mind-set: build it and they will come

By Dan Hallett, CFA, CFP on October 1st, 2010

The Globe & Mail recently reported that indexing giant Vanguard has surpassed Fidelity as the world's largest mutual fund company.  The article poses the question of whether this event indicates a growing interest in index-investing.  I think it is but not for the reason that may be apparent. Touched on in that piece is that long-established index mutual funds - most of which are offered... Read More

Gold’s investment merit

By Dan Hallett, CFA, CFP on September 27th, 2010

I recently challenged gold bulls to ask themselves tough questions before devoting significant dollars to the yellow metal.  A related topic - the investment merit of gold - was the topic of discussion on our panel on The Early Shift this morning on CBC Radio One (Windsor). During the discussion I repeated Warren Buffett's great quote on gold.  I knew that I couldn't remember it verbatim so... Read More

Buy local = saved jobs? Not so fast

By Dan Hallett, CFA, CFP on September 24th, 2010

Many subscribe to the buy local = save jobs mantra as a solution to the prevailing economic malaise.  While it's intuitive, this notion that we only buy from our own city, province or country breaks down under closer inspection.  This was the topic of the latest weekly round-table discussion on CBC Radio One (Windsor). Our discussion quickly shifted to the economic theory of Comparative... Read More

How to tilt the investing odds in your favour

By Dan Hallett, CFA, CFP on September 21st, 2010

My article in this morning's Globe & Mail offers tips to help investors retain more of the performance available to them.  As I jotted down the first tip - write down your investment goals - I found myself writing down something to the effect of, "...many academic studies confirm the benefits of writing down your goals". Then it occurred to me that while I believed this to be true, I... Read More

Is HXT’s 8 basis point savings enough to lure investors?

By Dan Hallett, CFA, CFP on September 18th, 2010

Most financial journalists in Canada charge that the Canadian investment fund industry lacks the kind of price competition we often see in the U.S. industry.  This is true.  But like the people, Canadian investment fund price wars exist though they're a little tamer.  Interestingly, the latest launch by Horizons BetaPro raises other questions. The print and online media quickly picked up on... Read More

Canadian fund fees revisited

By Dan Hallett, CFA, CFP on September 10th, 2010

A few weeks ago, I resurfaced my arguments against concluding that Canadian mutual fund costs exceed those of all other developed countries.  This is turning into one of those perpetual debates.  And while the industry - i.e. IFIC - has rarely been able to mount a unified response to reports of excessive fees in Canada, some individual companies have taken it upon themselves to fight... Read More

Gold bulls should ask tough questions

By Dan Hallett, CFA, CFP on September 8th, 2010

In 2001, I invested in a gold closed-end fund and held it for 4-5 years.  My rationale was based partly on what was then a low gold price and on this particular closed-end fund's hefty 30% discount to net asset value.  Since I sold the fund, the price of gold has more than doubled.  Despite leaving a lot of profit on the table, I haven't looked back since selling.  Still, I keep tabs on... Read More

The ironic comfort of balanced funds

By Dan Hallett, CFA, CFP on August 30th, 2010

In this weekend's Report on Business, Rob Carrick nicely captured my mixed feelings about balanced funds.  As I noted in a recent Wealth Steward post, it's critical to keep an eye on fees when choosing your bond exposure.  Yet, the vast majority of balanced funds - which hold significant stakes in bonds - sport management expense ratios that are on par with stock funds.  The reasoning goes... Read More

Where to invest? Look at what makes you squirm.

By Dan Hallett, CFA, CFP on August 26th, 2010

Yesterday's Globe & Mail featured an article by U.S. equity manager Larry Sarbit making the case to invest in U.S. stocks now.  He cited his 70% invested position (compared to 10% - 20% a few years ago) to illustrate his bullishness.  I have never really been convinced of Mr. Sarbit's stock picking skill despite his good track record.  Still, I found myself more or less agreeing with... Read More

U.S. bank failures lag economic & stock market bottoms

By Dan Hallett, CFA, CFP on August 24th, 2010

Several sources peg the total of U.S. bank failures at more than 9,000 during and after the Great Depression.  According to this source, about 70 banks annually failed during the 1920s but the pace soared after the famous stock market crash.  FDIC data on historical bank failures show that 3,555 banks failed or received assistance in 1933 alone, which accounts for almost half of all bank... Read More

More evidence that Canadian funds are not the world’s most expensive

By Dan Hallett, CFA, CFP on August 18th, 2010

A few years ago, a research paper by three academics claimed that Canadian mutual funds levied higher average fees than funds in seventeen other countries.  Since average Canadian fund fees are high, the media jumped all over this research - despite being incomplete.  Reading through many versions of the paper, it became clear that the core data and underlying assumptions were... Read More

Changes at Saxon Stock could mean a less-stellar future

By Dan Hallett, CFA, CFP on August 12th, 2010

The Globe & Mail's latest mutual fund number cruncher focuses on the top-performing Canadian Equity funds for the ten years ending June 30, 2010.  Quantitative screens like this can be illustrative.  As I read that Mackenzie Saxon Stock - Investor Series topped the list of 10-year performers, a few thoughts came to mind. As Shirley Won noted in the article, most of this fund's history... Read More

Tax-friendly bond exposure

By Dan Hallett, CFA, CFP on August 10th, 2010

In this morning's Globe & Mail, I gave an overview of investors' three main options for bond (or bond-like) exposure in taxable accounts.  It seems at least two preferred share funds escaped my radar.  I'd also like to touch on some other products - some mentioned in the article and some not. First, the mea culpa.  There aren't many preferred share funds around.  In fact, I thought I... Read More

Fees impact bond risk & return

By Dan Hallett, CFA, CFP on August 10th, 2010

Many financial advisors say that I harp too much on fees.  Many investors (and investor advocates) say that I'm not tough enough on fund fees.  Sometimes, I just can't win.  But nowhere are fees more important than in the selection of bond exposure.  Whether choosing a bond mutual fund, bond ETF or direct bond investments for fixed income exposure, total costs are paramount in the selection... Read More

Explaining XIU’s bi-polar performance

By Dan Hallett, CFA, CFP on August 3rd, 2010

In her latest Globe & Mail Number Cruncher, Shirley Won ranked the largest Canadian stock funds (including those with significant foreign stock holdings) by 5-year annualized return as of June 30, 2010.  The column also featured each of the funds' 10-year annualized return and the last few calendar year returns.  The iShares S&P/TSX 60 Index Fund (XIU) topped the 5-year list with a... Read More

AlphaPro Balanced ETF could have low fees for now

By Dan Hallett, CFA, CFP on July 29th, 2010

I was quoted in today's National Post regarding the launch of the Horizons AlphaPro Balanced ETF (HAA/TSX).  As is common practice in the ETF world, the firm only quotes the management fee on its website.  This fund, like most other AlphaPro offerings, charges a base management fee of 0.70% annually.  There was a time when an ETF's management expense ratio was the same or just a few basis... Read More

Most stock markets still deep in the red

By Dan Hallett, CFA, CFP on July 27th, 2010

The list of today's economic worries seems as long as it's ever been.  Bearish strategists underline negative economic statistics with 2009's brisk recovery in stock prices.  But the mathematics of loss/recovery - and more specifically where various asset classes sit today - might be surprising. So I took a selected list of asset classes and looked at total returns during the worst of the... Read More

XWD & XEM tracking errors much better than they appear

By Dan Hallett, CFA, CFP on July 20th, 2010

Sponsors of exchange-traded funds, or ETFs, generally have websites loaded with great information. I visit the iShares website regularly. One of my favourite tools is iShares' Tracking Error Chart.  For any iShares fund, it shows you how well each fund has tracked its respective index over various time periods. The iShares'  Tracking Error Chart would have you believe that XWD has lagged its... Read More

Stewardship: common sense not controversial

By Dan Hallett, CFA, CFP on July 5th, 2010

Morningstar Canada recently introduced its Stewardship Grades for 27 Canadian fund companies.  Media coverage began slowly but picked up momentum.  The Toronto Star's Jim Daw had some valid critique of the scoring scale.  Then, Tom Bradley devoted his Globe and Mail column to the topic.  (Note:  Bradley's Steadyhand Investment Funds ranked 8 out of 8 on Morningstar's stewardship scale -... Read More

Structural risks of real property funds

By Dan Hallett, CFA, CFP on June 22nd, 2010

In a recent Globe & Mail article, I was quoted as saying that I was amazed that real estate mutual and segregated funds still existed.  I was surprised at the extent of feedback I received on this seemingly innocent quote.  But clearly, the firms offering structured real estate investment vehicles are a passionate bunch.  I realized that some clarification and expansion may be of... Read More

Advisor compensation: no fee model is free from potential conflicts

By Dan Hallett, CFA, CFP on June 16th, 2010

Financial advisor compensation is one of those topics that is hotly debated but never fully resolved.  A recent article by the National Post's Jon Chevreau sparked a private exchange between me and another person quoted in that article.  The exchange raised a number of issues, some of which I consider misunderstandings pertaining to advisor compensation. Is fee-only superior to... Read More

ING DIRECT resumes index fund spin-doctoring

By Dan Hallett, CFA, CFP on June 15th, 2010

I have been a happy ING DIRECT banking and insurance client for more than a dozen years.  A little more than two years ago, they sent me (and presumably all of their clients) a brochure on their then-new Streetwise Funds® which extolled the virtues of indexing and minimizing costs.  In very broad terms, I won't argue against an approach aimed at delivering broad diversification with low... Read More

Know what correlation measures, and what it doesn’t

By Dan Hallett, CFA, CFP on June 2nd, 2010

The fund again resumed its tight correlation to the index starting in 2004 (until so far this year).  The lesson:  don't rely on the trailing three or five year correlation or r2 to tell you what will happen in the future. 4. Use correlation as a screen, then form an understanding of a fund.  If you want to find index-huggers, you can certainly use r2 or correlation as a screen... Read More

Adding value to ETF portfolios; how money managers use ETFs; and panic over Greece

By Dan Hallett, CFA, CFP on May 25th, 2010

In a recent blog post, I warned that advisors may face investment, competitive and/or compliance challenges when using ETFs in a fee-based account for clients.  In the May 2010 issue of Investment Executive, I took the opposite side of the issue by detailing how diligent advisors can add value to fee-based ETF portfolios.  Advisors aren't the only segment of the industry making greater use of... Read More

The shortcomings of Target Date Funds

By Dan Hallett, CFA, CFP on May 14th, 2010

While they've long existed in the U.S., Canadian investors have had access to Target Date Funds (TDFs) for less than a decade.  Those TDFs reporting to the Investment Funds Institute of Canada (IFIC) had assets of $4.1 billion at the end of March 2010.  They're reasonably popular but they're not yet a smashing success with retail investors. TDFs, as the name suggests, sets a maturity date... Read More

No free lunch with ETFs, unless you’re a disciplined DIY investor

By Dan Hallett, CFA, CFP on April 29th, 2010

There may be a trend afoot in the industry whereby mutual fund companies launch funds housing exchange-traded funds (ETFs).  The first I can recall is the now-defunct Spectrum Tactonics fund (which used technical analysis to trade ETFs) launched in 2001.  While many funds include ETFs among their holdings, Invesco PowerShares funds began last fall with a line of funds investing in specific... Read More

Mutual fund Point of Sale initiative

By Dan Hallett, CFA, CFP on April 26th, 2010

Advisor.ca reported on my talk at the Strategy Institute Mutual Fund Point-of-Sale (POS) Summit.  The panel in which I participated focused on Product Arbitrage - the situation that results when similar products are not treated the same by prevailing rules and regulations.  Where regulations result in a lower barrier to selling for some products (compared to others), arbitrage will result. ... Read More

Exposure, not speculation, should drive currency decisions

By Dan Hallett, CFA, CFP on April 12th, 2010

In this Windsor Star article, I provide some basic tips to tackling exposure to the U.S. dollar.  In addition to those tips, it should be noted that taking investment action on currencies based on speculation can be a humbling endeavour.  Instead, advisors and investors should keep the following tips in mind when trying to address portfolio currency risk. 1.      Liability... Read More

The challenges of passive fee-based advice; market neutral funds

By Dan Hallett, CFA, CFP on April 11th, 2010

In the April 2010 Investment Executive, I touch on some of the challenges that advisors face in transitioning to an index-oriented fee-based business model.  Keep an eye out for my follow-up in the May issue, in which I will outline where advisors can really add value to ETF or index-fund portfolios. On the other end of the investing spectrum, in this Globe & Mail article, I commented on... Read More

Income-generating funds, ETF proliferation

By Dan Hallett, CFA, CFP on March 25th, 2010

In a recent Globe & Mail article, I recommended two mutual funds focused on generating regular income.

In the March issue of Investment Executive, I opine that the ETF industry is following in the footsteps of the larger and older mutual fund industry.

The Loonie at par?

By Dan Hallett, CFA, CFP on March 22nd, 2010

This CBC Windsor Radio One panel discussion, in which I participated, tackles the Loonie's recent ascent.

Actively managed ETFs; Protecting against rising rates

By Dan Hallett, CFA, CFP on March 21st, 2010

ETFs are a hot topic these days.  As Mark and I highlighted in this post, active ETFs could be a game-changer for the investment fund industry.  In this March 20 Financial Post article, I spoke about the good and bad of active ETFs and the threat they could pose to traditional funds.  One downside not expanded upon in the article is the structure of performance fees on the AlphaPro ETFs. ... Read More

The changing face of income trusts, hedge funds, and T-series funds

By Dan Hallett, CFA, CFP on March 12th, 2010

Here are this week's latest media appearances by HighView Financial Group. In the March 12, 2010 Globe and Mail, I commented on the changing face of Income Trust mutual funds. In this Wall Street Journal article, I challenge the notion that Canadian hedge funds have offered higher returns (compared to global hedge funds) and the theory vs. practice of including hedge funds in portfolios. In... Read More

Fund company marketing in high gear

By Dan Hallett, CFA, CFP on March 2nd, 2010

RRSP sales are shaping up to be rather sluggish.  And with financial markets getting a bit jittery, it's no surprise that the fund industry's marketers have shifted into high gear.  Here are two of the marketing initiatives that caught my attention because they appear to be disconnected from investment reality. ROI's cash-back offer ROI fund, a labour-sponsored fund that is not only... Read More

HighView Financial Group in the media

By Dan Hallett, CFA, CFP on March 1st, 2010

In this February 20 Toronto Star article, I challenge the notion that it's easy to manage your own money.  It is simple but not easy. In today's Globe and Mail, I select two mutual funds for investors to consider as they plunk down a RRSP contribution on the last day to contribute for the 2009 tax... Read More

HighView Financial Group in the media

By Dan Hallett, CFA, CFP on February 25th, 2010

It's been a busy month. I wrote in the mid-February issue of Investment Executive about how the fund industry likes to have its cake and eat it too when it comes to asset allocation. In the February 23 issue of MoneySense Magazine, I address the risks of locking into 5-year GICs. Then, in the February 25 Globe & Mail, I provide two ETF picks for RRSP... Read More

T Series Funds: The Tax Efficiency Myth and Structural Risk

By Dan Hallett, CFA, CFP on February 9th, 2010

Investors would rather invest in something that distributes a regular amount of cash than sell their shares to generate cash flow.  This psychological phenomenon seems to hold no matter what the source of cash distributions.  Add perceived tax-friendliness and it’s no wonder that T series mutual fund units are so popular.  But the mirage of T series funds’ yield and tax efficiency comes... Read More