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Som Seif, President and CEO, Claymore Investments, Inc., Toronto. (Claymore Investments, Inc.)
Som Seif, President and CEO, Claymore Investments, Inc., Toronto. (Claymore Investments, Inc.)

Earlier Discussion

Dispelling the myths about ETFs Add to ...

[Comment From Som Seif]

Chad, absolutely more needs to be done and can be done on education front. My view on the leveraged/inverse products is there is a problem of a gap of education/understanding. This needs to be fixed. It has somewhat because of what has happened over the past few years, your example noted. More needs to be done so investors dont buy the wrong product. Ultimately though, investors do need to take responsibility to learn about a product before putting their money in. That will save a lot of heartache.

Darcy Keith - Thanks Som. David has our next question:

[Comment From David ]

What would be the impact on fixed income ETF's such as CLF and CBO if any country out there defaults on its debts? Are these ETF's relatively safe? Would they survive a major credit crisis?

[Comment From Som Seif]

Hi David, first these two ETFs are Canadian fixed income, so you'd need a default of Canadian gov't or corporate issuers to affect them materially. In any event, if a default of a country like Italy was to occur, this would have a major impact on global bond funds (mutual funds and ETFs) that had exposure to Europe or to bonds of financial institutions that had exposure to Italy. Really important to understand whats inside the portfolio. But a Canadian bond fund shouldnt have any impact. CLF and CBO are very high quality investment grade bonds underlying

Darcy Keith - Two very similar questions now from Bill and Dan:

[Comment From Bill ]

What effect will the introduction of Vanguard have to MERs on ETFs in Canada?

[Comment From Dan ]

How do you think Vanguard's arrival will affect the ETF marketplace in Canada?

[Comment From Som Seif]

Dan/Bill, good question. First i think its good innovation because they are just taking the benchmark indexes and lowering the costs. Overall thats a good thing. My personal view though is that benchmark investing is already very cheap in Canada through XIU, ZCN, XSP and other cheap funds. I do think that Vanguard has a lot of work to do to educate investors and develop a brand in the market. They will need to show people the value of switching from an established product like XIU to their Canadian equity fund for what amounts to about 7 bps difference after all fees.

[Comment From Albin ]

I've bought some of your ETFs under the iTrade no commission arrangement - just wondering if you're planning to extend that to other brokerages.

[Comment From Som Seif]

Thanks Albin. We thing what Scotia iTrade has done is a great innitiative for Canadians bringing zero cost trading. That said, we do hope more platforms offer this. We think its a great thing for Canadians. Our goal is to make investing in ETFs as easy and cheap as possible.

Darcy Keith - Here’s a question, left under comments for this article, from a user named ‘portfofino’:

Question: What percentage of ETFs are derivatives? How is the value calculated to take the fee? Finally, what transparency/controls are in place to ensure that these vehicles don't become overleveraged like the CDS/CDO market?

[Comment From Som Seif]

Good question, i'll answer the second question first. All ETFs and Mutual Funds charge management fees and they accrue daily based on NAV. Key difference with ETFs is that thay generally charge a management fee that includes all the operating expenses of the fund, unlike mutual funds...

[Comment From Som Seif]

Regarding use of derivatives...first, all ETFs in Canada are regulated as mutual funds and have specific rules about use of derivatives. This is how they are structured to not have these issues. If a derivative is used, like a mutual fund, there are limits on amount of exposure to any derivative and counterparty, they have to have 100% collateral, and all of it has to be in cash. This is very important. Lots of noise in Europe these days on use of Swaps and derivatives. But this is not a problem in Canada because our regulatory structure is very good at overseeing the products.

[Comment From Seamus ]

hello Som, one disadvantage I see with regards to EFT's is the fact that it is hard to dollar cost average your investments due to commission cost. This is one advantage that keeps a portion of my investments in mutual funds. If major brokerages do as scotia did and eliminate commission charges I would definitely take advantage of dollar cost averaging to . Do you envision major brokerages cutting such charges as scotia did in the future?

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