One of the best things mutual funds can offer an investor is a way to build a fully diversified portfolio in an instant.
Balanced funds and “portfolio solutions” – basically funds holding other funds – vary widely in cost and quality. But collectively, they’re a popular and practical way to invest for any long-term objective.
The exchange-traded fund sector does balanced funds even better – that is, cheaper and with more transparency. But balanced ETFs haven’t tapped their full popularity potential, even while investors have poured billions into these products since they were introduced by the Canadian arm of U.S. investing giant Vanguard in early 2018.
A positive step in the growth of balanced ETFs has been taken by TD Asset Management through the introduction of three new funds. They’re called TD One-Click ETF Portfolios, a reference to the fact that they give you a complete portfolio with one click of your mouse.
TD’s marketers made an interesting choice saying “one-click” as opposed to, say, one tap or one swipe. Boomers will get the click reference immediately, but millennials and Gen Z may trip over it. Still, the name is conceptually smart because it conveys the idea of a simple solution to the complex problem of building a diversified investment portfolio.
When you click – or tap – the button to confirm a trade for a balanced ETF such as the ones from TD, BMO Global Asset Management, BlackRock, Horizon ETFs Management (Canada) and others, you achieve instant exposure to stocks and bonds from Canada and the rest of the world.
The TD One-Click Moderate ETF Portfolio (TOCM-TSX) has 40 per cent of its assets in the FTSE Canada Universe Bond Index, 20 per cent in the Solactive Canada Broad Market Index, 25 per cent in the Solactive U.S. Large Cap CAD Index and 15 per cent in the Solactive GBS Developed Markets ex North America Large & Mid Cap CAD Index.
All of this is yours for the cost of an ETF trade, which will run you $5 to $10 at some brokers and zero at a few others that let you at least buy ETFs at no cost. The management fee for the TD one-click funds is 0.25 per cent, which suggests that the management expense ratio will be a bit higher when it’s disclosed in the months ahead. This would make TD balanced ETFs a little more expensive than the competition, with MERs as low as 0.2 per cent.
For a survey of what’s available broadly in balanced ETFs, check out The Globe and Mail ETF Buyer’s Guide 2020 (tgam.ca/ETFbuyersguide). TD’s new funds are not a low-cost leader, but they do point the way to making balanced ETFs easier to understand and approachable, which means a win for investors.
-- Rob Carrick, Globe and Mail personal finance columnist
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Short sales on the TSX: What bearish investors are betting against
If you want to avoid stocks that can torpedo your portfolio, take a look at the companies targeted by short sellers. Highlights in August include the banks, gold miners, Shopify Inc. and a maker of face masks, Alpha Pro Tech Ltd. The short position in the iShares S&P/TSX 60 exchange-traded fund is perhaps the best gauge of bearish bets on the overall direction of Canadian stocks. In August, it dropped dramatically from 119-million to 90-million shares, as many short sellers moved to unwind their positions in the face of the relentless upward trend in the market since mid-March. Larry MacDonald takes an indepth look at what’s going on with the latest short positions in Canada. (for subscribers)
The loonie is not as strong as it seems - and investors are piling on bets it’ll soon tumble
Don’t be fooled by the loonie’s steady rise over the past five months. The Canadian dollar is not quite as strong as it seems. It’s an easy mistake to make, given how much the currency has rebounded since the dark days of late March. But the loonie’s advances have been less than stellar when compared with the powerful tailwinds supporting it, and short positions against the currency are on the rise. Tim Shufelt has more. (for subscribers)
BMO revises TSX target, expects bounceback in banks to propel index to record highs by year end
With earnings season pretty much wrapped up, the record highs that have eluded the Canadian stock market for six months may be starting to come into view. As impressive as the rally in Canadian stocks has been over that time, there’s been one big missing piece. Or rather, six of them. The Big Six, as Canada’s largest banks are known, have been mired by concerns over the economy and resulting credit losses, which has held back the S&P/TSX Composite Index from making that last leg upward to pre-pandemic levels. BMO’s top strategist, Brian Belski, thinks that’s about to change, as he set a new target for the TSX for year-end. Tim Shufelt reports. (for subscribers)
U.S. big tech dominates stock market after monster rally, leaving investors on edge
U.S. technology giants are increasingly dominating the stock market in the midst of the coronavirus pandemic, even as they draw accusations of unfair business practices, and some investors fear the pump is primed for a tech-fueled sell-off. Lawrence Delevingne of Reuters reports. (for subscribers)
Betting on European stocks as the global economy reopens
Much of Europe remains off limits to American tourists because of the pandemic, but the region is looking like an attractive destination for stock investors. While eurozone stocks remain in a slump relative to the U.S. stock market’s record-shattering rebound, they could be poised for solid gains as the global economy continues to reopen, analysts say. Alex Veiga of Reuters reports. (for subscribers)
Others (for subscribers)
Number Cruncher: Equity analysts favour these 11 TSX stocks
Ask Globe Investor
Question: My daughter will be starting university this fall and I will need to withdraw money from her registered education savings plan. What should I withdraw first – contributions, investment earnings or a combination?
Answer: First, some background. When your child enrolls in postsecondary school, there are two types of RESP withdrawals you can make: a refund of contributions, which represents the funds you deposited into the RESP, and an educational assistance payment (EAP), which consists of investment earnings and government grants that have accumulated in the plan.
A refund of contributions is tax-free and can be made at any time, so there’s no reason to withdraw the money now unless you need it. An EAP, on the other hand, is taxable in the beneficiary’s hands, so the timing of your EAPs is important. Exhausting EAPs while your daughter is in school should be a priority, because if she quits or graduates and there are still grants and earnings in the plan, there could be stiff financial penalties.
Here’s the good news: Because many students have little or no income, and because they qualify for basic personal tax credits and the federal tuition credit, it’s often possible to make fairly large EAP withdrawals with negligible tax consequences. In Ontario, for example, a student paying tuition of $5,000 – and who has no other sources of income – could receive an EAP of up to about $15,700 without paying any tax. (I’m basing this on the 2020 Canadian income tax calculator at taxtips.ca; do your own calculations or talk to an adviser before deciding how much to withdraw as an EAP.)
Generally, it’s most tax efficient to spread your EAPs fairly evenly across the years when your daughter is in school to keep the tax hit in any one year to a minimum. However, if her income is expected to be higher in a particular year – say she gets a part-time job – you could dial back the EAP in that year and withdraw more contributions. If you have an especially large RESP, it may not be possible for your daughter to avoid paying tax entirely, but consider yourselves fortunate to have this “problem.”
Also keep in mind that EAPs are limited to $5,000 in the first 13 weeks of a full-time program (you’ll need to provide your financial institution, or “promoter,” with proof of enrolment to make an EAP). After that, there is theoretically no limit on EAP withdrawals, but your financial institution may ask for proof that the money is for educational expenses. However, in a recent bulletin, the federal government said it considers EAP requests below its inflation-indexed annual threshold limit ($24,432 for 2020) to be acceptable. “We do not expect promoters to assess the reasonableness of each expense item as long as the conditions permitting an EAP are met,” it said.
What’s up in the days ahead
If you’re a bank investor and thinking you’ll collect some nice capital gains in coming years in addition to dividend payouts, you better think twice. Ian McGugan will explain this weekend.
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Compiled by Globe Investor Staff