ETF investing - Questions

[arthur]

ETF. Exchange Traded Funds.

My concern is that you are trying to be so specific, both in terms of timing and of asset class, which would be more of a gamble than an investment?

US ETF's for long Term investors are usually QQQQ, SPY, DIA, MDY or similar.

Suggest you google to ETF's and se whether a spacific one is what you are loking for.

I am not in the US Market at this time, I think their $ has further to fall?

[mylund]

Is there any value to managed indexes or is it basically hand holding?
Regards.

[Taggart]

The Wall Street Journal

What to Do When Your Fancy ETF Goes R.I.P.

By JASON ZWEIG

After a Long Boom,
A Bust Is Inevitable;
What to Watch For
August 2, 2008

Sooner or later, Wall Street turns every good idea into a bad one.

[BRIAN5000]

Someone mentioned on a thread that they had a sweep set up at TDW. Is this true can you set up a sweep that will take cash from a account and put it into X, automatic or only manually.

So if dividends are allowed to flow into the account I would like them swept into a MM every night like Edwards Jones can do?

[Arby]

Someone mentioned on a thread that they had a sweep set up at TDW. Is this true can you set up a sweep that will take cash from a account and put it into X, automatic or only manually.

So if dividends are allowed to flow into the account I would like them swept into a MM every night like Edwards Jones can do?

From the TDW Trade Guide:

Income Generation Account (IGA) – also known as a Sweep Account

For your convenience, interest and dividend income can be automatically transferred
from your non-registered account to your Income Generation Account. Then, on the
5th and the 20th day of each month, the money in your IGA is transferred to the bank
account of your choice at TD Canada Trust or another Canadian financial institution

I set up a TDW sweep account a few years ago, but I eventually shut it down. One of the problems was the sweep applies to all holding in your account. You can't select individual holding to sweep.

[Taggart]

Personally, I'm not exactly thrilled to read the following news this morning.

------------------------------------------------

August 07, 2008 08:30 AM Eastern Daylight Time

Deutsche Bank to Issue ELEMENTSSM Exchange-Traded Notes Linked to Benjamin GrahamSM Intelligent Value Indices

[Norbert Schlenker]

Personally, I'm not exactly thrilled ...

Why?

[MathGuy]

I see that Benjamin Graham Small Cap Value ELEMENTS will take over Bear Stearns Ticker on the NYSE: BSC.

[Taggart]

Personally, I'm not exactly thrilled ...

Why?

There will be certainly be more competition for equities with liquidity selling at a discount to their estimated true value. These discounts would narrow as more of these computer generated institutions enter the fray, and over time, you'd be getting closer and closer to the efficient market.

The only thing left eventually, may be the illiquid stocks that most institutions, ETF's and funds can't buy, but only the small investor can.

[WishingWealth]

In Yahoo News.
http://ca.news.yahoo.com/s/capress/0901 ... 90120_etfs

ETFs selling better than mutual funds, market leader Barclays reports.
The rush into exchange traded funds has been gathering pace in tough times, with the dominant operator declaring it outsold the best-selling Canadian long-term mutual fund providers during 2008 for the first time.

Barclays Global Investors says its iShares ETFs added $4.4 billion in net new assets during the year.

Meanwhile, the mutual fund industry's assets, excluding money market funds, shrank by about $15 billion.

Exchange traded funds are bought and sold like stocks but consist of packages of shares, bonds or other securities based on indexes. Their performance doesn't beat the market - but they also don't underperform it, and their costs are lower than actively managed mutual funds.

Barclays, which claims 84 per cent of the Canadian ETF market, says exchange traded funds benefited from a "historic shift in Canada's investment landscape" amid last year's wrenching volatility.

The decade-old iShares family, currently with 29 funds, now represents more than five per cent of all trading on the Toronto Stock Exchange, and with $16.4 billion in assets at year-end the iShares group is bigger by assets than all but 12 Canadian mutual fund companies.

It has "about a 50-50 mix" of institutional and small investors, Heather Pelant, head of iShares for Barclays in Canada, said in an interview Tuesday.

"My assumption is over the long run that the retail percentage will edge up a little bit," Pelant added.

Propelled by the transparency, cost-effectiveness and tax efficiency of ETFs - no capital gains get reaped at a fund manager's convenience rather than the individual investor's - "there's a mindset shift in Canadians, turning toward index products," Pelant said.
..
Dennis Yanchus, manager of statistics and research at the Investment Funds Institute of Canada, took issue with Barclays' claim that Canadians cashed out of mutual funds in favour of ETFs.

"Don't confuse correlation with causation," Yanchus said, adding that heavier institutional trading in ETFs "is just as likely an explanation."

Nevertheless, "It's fair to say that Barclays did better sales-wise than the mutual find industry as a whole did," said Rudy Luukko, investment funds editor at fund tracking company Morningstar Canada.

Pelant acknowledged that the largest ETF in Canada, the iShares Canadian LargeCap 60 (TSX:XIU), "is very much, and it has been for a long time, an institutional tool."

However, 2008 "was a very strong year in fixed-income ETFs," which are "more distinctly retail in nature," she added.
...

WW

[pondus]

I'm a newbie to investing. I have EFTs in my RRSP account, my regular cash account, and now my Tax Free Savings Account.

I have a mix of CBQ, XIC, XIN, and XSP. I also have a few XDV. I use Questrade.

I buy and hold , but sometimes when the BRIC takes a huge spike I'll sell it and profit take. I also took a $3000 hit once when I panick sold as the market sunk, only to bounce back the next day.

I'm not sure what the tax implications of my portfolio is, but I have a feeling that various ETFs are better placed in certain accounts. For example, profit taking should only happen in the RRSP account. Dividends should be in the TFSA. Make sure I hold ETFs in my cash account for at least 1 year, etc. etc.

Bottom line, where can I go to learn more about the tax implications of ETF investing.

[randomwalker]

you might start here http://ca.ishares.com/about_ishares/str ... lio_tax.do

[wellnow]

We want to buy a little VTV,VEA for diversification.I read here that tax inefficient should be held inside.We are now in the RRIF stage and are concerned about putting anything that might go down in price in there plus the lose of ability to claim a capital lose.Therefor we would rather hold them outside.
Any guidance?What are we losing by holding them outside?
Thank you

[demann]

I like the idea of indexing, but I don't know which indexes to include and which ETF's to buy to represent the underlying index.

This will be in a non registered account and will be added to from time to time and will be held for many years.

I'm looking at indexes for all the major asset classes eg. equity , fixed income , commodities and precious metals. I have omitted real estate because I consider my house as a real estate asset.

Which ETF's are the most desirable ??? what about a total world stock market index and ETF , and a similar index and ETF for bonds/commodities/ etc. world wide.

As a follow up could all these indexes have currency conversions to what ever country you want to live in??? ....is this possible or desirable??

Is there such thing as an inflation index that you could buy, and would rise and fall in value with inflation???


Thanks

[demann]

I like the idea of indexing, but I don't know which indexes to include and which ETF's to buy to represent the underlying index.

This will be in a non registered account and will be added to from time to time and will be held for many years.

I'm looking at indexes for all the major asset classes eg. equity , fixed income , commodities and precious metals. I have omitted real estate because I consider my house as a real estate asset.

Which ETF's are the most desirable ??? what about a total world stock market index and ETF , and a similar index and ETF for bonds/commodities/ etc. world wide.

As a follow up could all these indexes have currency conversions to what ever country you want to live in??? ....is this possible or desirable??

Is there such thing as an inflation index that you could buy, and would rise and fall in value with inflation???

[randomwalker]

I like the idea of indexing, but I don't know which indexes to include and which ETF's to buy to represent the underlying index.

This will be in a non registered account and will be added to from time to time and will be held for many years.

I'm looking at indexes for all the major asset classes eg. equity , fixed income , commodities and precious metals. I have omitted real estate because I consider my house as a real estate asset.

Which ETF's are the most desirable ??? what about a total world stock market index and ETF , and a similar index and ETF for bonds/commodities/ etc. world wide.

As a follow up could all these indexes have currency conversions to what ever country you want to live in??? ....is this possible or desirable??

Is there such thing as an inflation index that you could buy, and would rise and fall in value with inflation???

If you're interested in in ETF's you might want to start here reading either/both,

John Bogle's "Common Sense on Mutual Funds"
http://www.amazon.com/Common-Sense-Mutu ... 232&sr=1-3

Larry E. Swedroe's "The Only Guide to a Winning Investment Strategy You'll Ever Need"
http://www.amazon.com/Guide-Winning-Inv ... 154&sr=1-3

Some of the better known providers of ETFs, there are more,

http://ca.ishares.com/splash.do

http://www.claymoreinvestments.ca/etf/

http://www.vanguard.com/jumppage/etfs/index.html

http://www.wisdomtree.com/

[Shakespeare]

What's a good current non-vendor US ETF site?

[Bylo Selhi]

http://www.indexuniverse.com/

[Shakespeare]

Not what I want. There used to be a site that listed all US ETFs and allowed you to search by type, but it seems to have disappeared.

[Bylo Selhi]

http://www.indexuniverse.com/sections/data.html

[demann]

there seems to be so many indexes and index ETF's, choosing one is starting to feel like trying to choose a stock. I thought the whole idea was to eliminate the guess work and just "be the equity market" and do this as cheaply as possible. so my question is which index best reflects the equity market? is it better to use a total world equity market index or to say use 3 indexes say Can/US/Other? Then once I have the index(es) I want to follow what is the cheapest way to do this in a non-reg account.??

[Bylo Selhi]

there seems to be so many indexes and index ETF's, choosing one is starting to feel like trying to choose a stock

Mostly true but especially so when you stray off the broad market index path.

I thought the whole idea was to eliminate the guess work and just "be the equity market" and do this as cheaply as possible.

That's the whole idea for investors, but not necessarily for the fund/ETF sponsors who are trying to gain market share and/or attract advisors to use their funds.

is it better to use a total world equity market index or to say use 3 indexes say Can/US/Other?

The problem with a single "world" ETF is that it represents Canada only by its relative market cap weighting, i.e. 2% or 3%. For a Canadian resident who plans to retire in Canada and whose expenditures are going to be mostly in Canada, that's too low. You could get away with a 2 index solution like MSCI World plus TSX Composite to increase Canadian weighting.

Then once I have the index(es) I want to follow what is the cheapest way to do this in a non-reg account.?

For large, lump sum investing, usually ETFs. For small, regular DCA investments, usually index funds.

With index funds, TD eFunds is generally the best option. If you have at least $150k then consider CIBC index funds due to their MER rebate. OTOH if you have $150k to invest in index funds you can reduce MERs even below CIBC's 30bp using ETFs.

There have been several threads that discuss the pros and cons of index funds vs. ETFs. You can find them using the forum's Search facility. The discussions can be quite complex when you consider issues like fees (brokerage, MERs, spreads), taxes (income, withholding, estate, etc.), dealing with distributions, etc.

The trick is to find a balance between simplification and absolute cost minimization. The balance point depends on a bunch of factors, but the main one is the size of your portfolio.

[DenisD]

As market values drop and yields rise, the foreign tax credit advantage of Canadian-based funds/ETF's over US-based ETF's investing in international markets and held in nonregistered accounts grows.

The following example assumes a yield of 4%, international and US withholding taxes of 15% and Canadian marginal tax rate of 40%. The Canadian-based fund/ETF has a 0.36% advantage.

Code: Select all

                                       CA       US
Initial investment                 50,000   50,000
International income          4%    2,000    2,000
International tax withheld   15%      300      300
US income                                    1,700
US tax withheld              15%               255
Deposit to account                  1,700    1,445
Net Canadian tax owing       40%      500      425
After-tax income                    1,200    1,020
CA percent advantage       0.36%


[Shakespeare]

From DanH:

ETF rule: Keep it simple

Successful indexing comes down to a few simple rules:

Minimize your costs. Aim for all-in fees of less than 0.5 per cent.

Don't get cute with your picks. Resist the itch to attempt to outsmart the market and stick to broadly diversified funds.

If you're unsure how to split your investments among stocks and bonds, then a good starting point is to put half into each.

Finally, rebalance only when your mix gets out of whack (say by at least 10 percentage points) to avoid making decisions driven by fear or greed.

These rules should serve index investors well over time.

Dan Hallett, CFA, CFP is president of Dan Hallett & Associates Inc., a Windsor, Ont.-based investment research firm.

[Bylo Selhi]

From DanH: ETF rule: Keep it simple

Good article. To complement "Minimize your costs" I'd add: Minimize your taxes. If you don't have room to put everything in tax-sheltered accounts like RRSPs and TFSAs, put the least tax efficient ETFs (bonds) in tax-sheltered accounts and the most tax efficient ETFs (stocks) in taxable accounts.