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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 Mike ]

Following up on Mark's question, what's a reasonable MER?

[Comment From Som Seif]

Hi Mark, actually there are 2 answers. First, the MERs on basic benchmark ETFs has actually been creeping downwards as more competition comes to the market and new players try to find ways to compete for investor attention. But the Avg MER of all ETFs has actually gone up, driven mainly by the gorwth of new strategy based ETFs and also new asset classes (e.g. commodities and other novel asset classes). Generally, the fees of an ETF are very competitive relative to the comparable active management products. But you do have to look at this more closely now. investing in Emerging Markets isnt and shouldnt be the same price as investing in Canadian equities.

[Comment From Bill ]

Related to Marks's question regarding MERs - since the introduction of the HST in Ontario, would moving to a different province help to lower fees?

[Comment From Som Seif]

Ha ha ha, we all looked at this quite closely. But the reality is no, otherwise we would have. First i think that HST on a mutual fund is a total tax grab. But the issue with moving to another province is that its where the servicing is done that matters. So all the costs of audit regulatory, etc. So its very hard to avoid. Finally, even if we moved to save a portion of it, there was no guarantee a province like Alberta wouldnt implement an HST like tax there in the future. So this is a real issue we all face.

[Comment From Joe ]

Are there any tax advantages of ETFs over Mutual Funds in a corporate/class structure?

[Comment From Som Seif]

Hi Joe, first i am generally a fan of Corporate Class mutual fund structure. I still think they are way too expensive in Canada. Regarding ETFs, because of the lower turnover of the underlying strategies and the structure of how the portfolio gets invested, ETFs have generally lower capital gains than high turnover mutual funds. Against Corporate Class funds, we have launched the Advantaged Series of funds which similarly have the ability to create more tax efficient income. What ETFs dont allow is the ability to switch inside the family on a tax exempt basis. It would be counterintuitive given they are exchange traded, so wouldnt make sense for ETFs to offer this.

Darcy Keith - I have to apologize to many of our readers who have asked questions that we haven’t had time to answer. This discussion has been extremely popular ... and we’ll have to have one again soon. For now, here’s a final question from Dan:

[Comment From Dan Lokay ]

A general question on ETFs: Can you elaborate on the mechanism which ensures that the ETF is correctly priced relative to the underlying portfolio? Theoretically, every buyer or seller can do these calculations, but practically, it is hard to believe that they are capable of doing it. So it seems that, as a result of bursts of purchases or sales, the ETF price can deviate from the underlying value of the securities. Or is it the market maker (for example Calymore?) which has the task of assuring "fiarness" of the ETF price (in addition to the usual role of a market maker of a single stock)?

[Comment From Dan Lokay ]

Thanks in advance.

[Comment From Som Seif]

Dan, the key to this is that an ETF (unlike a stock) is an open end fund. So new demand or supply is met through creations of new units or redemption back to the fund. So by virtue of this, the market makers (not Claymore, but the major banks in Canada are our market makers) can effectively post a bid and an ask in the market very close to the underlying ETFs Net Asset Value at all times during the day because if they sell units to meet demand, they will just create units at NAV. If they buy units back because excess supply, they will just redeem at NAV back to the fund.

Darcy Keith - Thanks Som. This has been a great discussion that’s been useful I’m sure to many of our readers. Are there any final thoughts you’d like to leave with our audience today?

[Comment From Som Seif]

Thanks everyone for the great questions. A lot of fun

Darcy Keith - For those who many not know, we have a great page here at Globe Investor for more information on ETFs. You’ll find valuable data, such as most active ETFs of the day, and many news articles and features.

Click here to check it out

Darcy Keith - Thanks to all for joining us today!

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