Build an ETF portfolio – with an
adviser's touch
JONATHAN CHEVREAU
MoneySense
Published Wednesday, September 10, 2014
If you�ve been listening to the news lately, then you�ve noticed that low-cost
automated investment services are making the leap from the U.S. market to Canada.
While in the U.S. they�re called robo-advisers, a better word for the Canadian
versions might be semi-automated �light advice� services.
Recent issues of MoneySense have talked about the arrival of NestWealth,
WealthSimple (which has just received regulatory approval) and WealthBar Financial
Services. WealthBar�s website says it will be arriving �soon� and is registered as a
portfolio manager in British Columbia, Alberta and Ontario. As well,
SmartMoney�owned by Money Capital Management�is also about to launch in Canada. Most
of these use exchange-traded funds (ETFs) as the underlying investment vehicle. That
means investors can expect to pay either a monthly subscription fee or an
asset-based fee of about 0.5% a year. Even adding in the management expense ratios
(MERs) of the underlying ETFs, the total cost should come in at less than half what
actively managed Canadian mutual funds or wrap accounts charge.
Apart from these startups, you can also expect to see more established firms
reinventing themselves with similar models. Take ShareOwner Investments Inc., of
Toronto. Since 1987, it�s been the place knowledgeable Canadian investors have
bought individual stocks through DRIPS (dividend reinvestment plans). Last May,
ShareOnwer announced the launch of a new portfolio building service that�s based now
on individual stocks but�you guessed it�ETFs.
As with its DRIP program for individual stocks, ShareOwner�s ETF portfolio service
is very cost-efficient. Contributions and distributions are automatically invested
in all the ETFs in one of the five model portfolios chosen by the retail investor.
As with the other services, asset allocations are reviewed and rebalanced to ensure
they stay with agreed target levels. For instance, if Canadian equities are supposed
to be weighted at 20% of a portfolio, the service won�t let the allocation dip below
17.5% or above 22.5%, says ShareOwner president and CEO Bruce Seago. (Previous
ShareOwner head John Bart, is now retired.)
Clearly, long-standing ShareOwner customers own individual socks but many are now
also using ETFs as the core of index part of their portfolios, particularly for
international exposure outside North America. ShareOwner has about 500 Canadian and
U.S. stocks. There are no commissions to buy or sell but a fee of 0.5% of assets is
charged on the portfolio value, billed monthly, and capped at $40 a month for any
account over $100,000. As an example, an investor may want to add $500 a month to
portfolios holding between eight and 12 ETFs. The $500 will be spread among all
those ETFs automatically with each payment, in the correct proportions and with no
trading costs. Similarly, any cash from dividends will also be deployed and
fractional shares can be accommodated.
Because the emphasis is on core, broadly diversified ETFs, the funds are mostly from
BMO, BlackRock Canada�s iShares and Vanguard Canada, Seago says, although others are
available for those who want custom portfolios. He adds that even if clients want to
invest in both individual stocks and ETFs, they would maintain separate accounts for
them. For the most part, the model portfolios stick to the major asset classes or
stocks, bonds and cash, but those who want to do so can get previous metals or gold
exposure through ETFs�one that holds mining stocks, the other that holds
bullion�directly.
While the service is aimed at do-it-yourself investors, personal human advice is
provided for those who feel they need help choosing an appropriate portfolio.
�Building a portfolio does require thinking about risk tolerance,� says Seago. �Once
you know how much risk to take, you can pick one of our portfolios�most of which
usually match up with the needs of our investors. We are adding a human element on
top.�
This article was originally published here |
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