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The top reason to invest in exchange-traded funds as opposed to other choices is the low cost of ownership - end of debate.

But the ETF industry has in the past year had some success selling high-cost funds. A report from National Bank Financial shows that close to 12 per cent of money flowing into ETFs in 2021 went to products with management expense ratios of 1 per cent and more. For context, you can buy exposure to the S&P/TSX composite or S&P 500 indexes with MERs of 0.06 to 0.1 per cent.

NBF’s report shows that high-cost funds still represent just a small fraction of total ETF assets – less than 5 per cent. But the popularity of high cost ETFs is worth noting because it recalls past experience in the mutual fund industry with similar products.

These trendy mutual funds tended to be expensive, one reason being that you can get cute on pricing when there’s strong demand. But when the trend faded, it was common for these funds to fall hard in price. In the example of science and technology funds in the early 2000s, many withered to a point where they were merged into other products or closed.

ETF companies are now the prime movers in popping out new funds to exploit trends. NBF attributes the popularity of high-cost funds last year to “the buying frenzy in newly launched crypto-asset ETFs and the adoption of alternative ETFs (market neutral, hedge fund type strategy, etc.)”

Paying a high MER for an ETF only makes sense if it out-earns the mega-cheap, index-tracking funds that continue to hold the most ETF assets. In the short term, this outperformance is certainly possible. But over the long term, it’s doubtful. In fact, some high flying stocks and ETFs have recently started to drop considerably in price.

If you own a high-cost, trend-following ETF, now’s the time to evaluate whether your returns justify the cost. There’s nothing wrong with cutting a fund loose if it no longer makes sense, even if you’re down in price. Selling some or all of a speculative ETF to lock in profits is also worth a thought.

The NBF report shows that more than 50 per cent of all ETF assets and inflows last year were into funds with MERs between zero and 0.3 per cent, which is admirably cheap. NBF figures that investors are using a barbell approach of putting a large segment of their portfolio into low-cost index tracking ETFs and the rest to more expensive, higher risk products.

Low fees are an excellent foundation for an ETF you keep for the long-term. Funds with a high fee need to be handled much more carefully.

-- Rob Carrick, personal finance columnist

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Stocks to ponder

Barrick Gold Corp. (ABX-T) Stocks and bonds have hit a rough patch in January, stoking demand for haven investments that will provide an offsetting lift. Unfortunately, gold isn’t stepping up, raising some uncertainty about the case for investing in Canada’s largest bullion producer. David Berman looks at the stock’s latest prospects.

The Rundown

Making portfolio changes amid these shaky markets? Here’s an update to David Rosenberg’s best investment ideas for 2022

David Rosenberg’s theme going into 2022 has been the “Great Transition” – monetary and fiscal policy shifting from tailwinds to headwinds, causing a deceleration in growth and earnings, with inflation switching to disinflation as the pandemic moves into an endemic phase. He believes the volatility to start the year is a result of markets adjusting to these new realities. Here’s an update to his best investment ideas for 2022.

Also see: BlackRock reduces underweight position in U.S. Treasuries

Slowing growth has markets in a sour mood

Financial markets are in a foul mood and for two good reasons – interest rates are rocketing higher and corporate profit growth is careening lower. The highest inflation readings in decades in both Canada and the U.S. have put everyone on edge about what comes next. Most likely it will involve significantly higher interest rates and significantly lower levels of government support – the mirror image, in other words, of what happened when the pandemic struck two years ago. Where does this leave investors? Ian McGugan has some thoughts.

What history says about investing during times of military brinkmanship and conflict

Geopolitical tensions are escalating. China is threatening war – nuclear, if necessary – against countries that interfere with its claim to Taiwan. Russia is massing troops and ballistic missiles on its border with Ukraine. India and China are building up military forces on their borders. Maybe it’s time to hope for the best but plan for the worst? Larry MacDonald looks at what worked for investors in the past during times of geopolitical upheaval.

So much for the ‘January Effect.’ What a weak start to 2022 may mean for the rest of this year

The “January Effect” is the tendency for the first month of the year to be, on average, a strong month for stocks, particularly those of smaller companies. This year may be an exception. But with the S&P 500 index down about 10 per cent so far this month - signaling a correction - does this invalidate the so-called January Effect? Value investing professor Dr. George Athanassakos has some thoughts.

An ETF that profits from inflation – but it’s risky

We’re going into a full-scale war against inflation, even while the world still tries to recover from the economic impact of COVID. What’s an investor to do in these circumstances? One reader asked Gordon Pape whether an ETF he’d discovered would be appropriate. It’s the VanEck Inflation Allocation ETF (RAAX-A). The reader was impressed by its recent performance record and a distribution yield over 8 per cent. Here are Gordon’s thoughts.

Others (for subscribers)

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: CFO invests almost $900,000 in this oversold stock in correction territory

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Ask Globe Investor

Question: I have slightly more than US$100,000 in a U.S. dollar savings account with one of the big Canadian banks. Am I protected by deposit insurance?

Answer: Yes – to an extent.

In April, 2020, Canada Deposit Insurance Corp. expanded its coverage to include foreign currency deposits held at eligible Canadian financial institutions. However, deposits are covered only up to a maximum of $100,000 in Canadian currency.

Converted to Canadian dollars, your US$100,000 deposit is worth about $125,000, which puts you over the insured limit. What’s more, for the purposes of determining your CDIC coverage, your U.S. dollar savings are lumped together with other non-registered deposits at the same financial institution, including Canadian dollar chequing accounts, savings accounts and guaranteed investment certificates.

So, for example, if you also have a Canadian dollar chequing account with $50,000 and a GIC with $10,000 at the same bank, your combined non-registered deposits would total about $185,000 ($125,000 plus $50,000 plus $10,000). That means about $85,000 of your cash would not be insured in the unlikely event of a bank failure.

Fortunately, it’s relatively easy to get around these limits. You could, for example, open an account at a different financial institution and move sufficient funds so that you are below the $100,000 insured limit per account type at each institution.

Another option would be to move some of your savings to a different account type at the same financial institution. Joint accounts, tax-free savings accounts, registered retirement savings plans and registered retirement income funds, for example, are all considered separate categories for the purposes of deposit insurance, each subject to its own $100,000 limit.

Depositors will soon get even more coverage from CDIC. Beginning April 30, registered education savings plans and registered disability savings plans will also qualify for separate coverage of up to $100,000 for eligible deposits. It’s important to remember that deposit insurance covers only chequing and savings deposits, term deposits and foreign currency deposits. It does not cover mutual funds, exchange-traded funds, stocks, bonds or cryptocurrencies.

--John Heinzl

What’s up in the days ahead

Ian McGugan will explain why the current pullback in the markets is quite unlike the ones of the past.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff