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Wealth Professional | 24 Nov 2014, 12:01 PM Agree 0
Yves Rebetez is managing director of ETF Insights, Canada’s leading publication covering the ETF industry. On the weekend Rebetez had a guest column in the Financial Post highlighting the reasons ETFs held within mutual funds make no sense.
  • Ryan | 24 Nov 2014, 01:12 PM Agree 0
    While the example given does illustrate a situation where owning the individual EFT outside of a mutual fund is more beneficial, there are circumstances (i.e. corporate class mutuals holding ETFs) where the ability to better control taxation offers inherent benefits that you cannot get from the ETFs when repositioning the portfolio for asset allocation and other purposes. Unless there is strategic tax planning involved, however, the article is quite correct in that the only logical reason to purchase the MF instead of the ETF itself is because of the licensing restrictions of a mutual fund only representative.
  • Will Ashworth | 24 Nov 2014, 02:27 PM Agree 0
    Ryan,

    Your comment indicates just how in vogue corporate class mutual funds are at the moment.

    Perhaps all 9 of the ETF providers in Canada ought to offer a corporate class structure.

    Thanks for the comment.
  • Kevin O'Brien | 24 Nov 2014, 02:32 PM Agree 0
    BMO is perpetuating the myth that Passive investing is better than Active. Only a Bank would play both sides against the middle. In the end it is the Banks Customers who suffer and the media paints the industry with a broad brush . I suggest the BOM client seek out a fee based advisor, have a plan and for Canadians to drop the Big 5 banks as being your source of financial services. Their focus is on making your money...their money.
  • Will Ashworth | 24 Nov 2014, 03:52 PM Agree 0
    Kevin,

    Good points all of them. Thanks for chiming in.
  • Graham | 25 Nov 2014, 12:06 PM Agree 0
    Kevin is right. Looking at a Bank's product is just the wrong place to start. If you look at Purpose Investments or Invesco's Powershares, the ETFs and mutual fund versions have almost identical costs.
  • Will Ashworth | 25 Nov 2014, 12:21 PM Agree 0
    Hi Graham,

    One of the main ideas of the article is that BMO is double-dipping on fees.

    Thanks for your comment.
  • Adam | 23 Dec 2014, 01:19 AM Agree 0
    I agree completely with the logic of this article. However, I am extremely confused that the data I look at doesn't seem to support it (???):
    The “BMO Canadian Equity ETF fund” holds almost 100% ZCN. As a mutual fund, it has a higher MER than the ZCN it holds, obviously. So it is completely obvious beyond any doubt to me that the BMO Canadian Equity ETF fund cannot ever outperform the ZCN it is holding. It would simply be impossible. And yet, when I look at performance and graphs online, I see that it does!
    For YTD performance, for example:
    ZCN has risen 6.63%.
    The mutual fund holding it has risen about 7.78% (if I understand correctly: Morningstar says if I had 10k on Jan 2, it’d be 10776 by now. Google finance gives similar numbers.).
    Alternatively, if I go to google finance and plot ZCN performance and the mutual fund (MUTF_CA:GGF70144) performance for 1 year or 2 years (etc), the mutual fund curve is almost always higher than the ZCN curve.

    I am extremely confused… do I not understand ETFs at all? I would be completely sure that this is completely impossible, so clearly I am extremely confused about something…
  • Adam | 23 Dec 2014, 01:20 AM Agree 0
    I agree completely with the logic of this article. However, I am extremely confused that the data I look at doesn't seem to support it (???):
    The “BMO Canadian Equity ETF fund” holds almost 100% ZCN. As a mutual fund, it has a higher MER than the ZCN it holds, obviously. So it is completely obvious beyond any doubt to me that the BMO Canadian Equity ETF fund cannot ever outperform the ZCN it is holding. It would simply be impossible. And yet, when I look at performance and graphs online, I see that it does!
    For YTD performance, for example:
    ZCN has risen 6.63%.
    The mutual fund holding it has risen about 7.78% (if I understand correctly: Morningstar says if I had 10k on Jan 2, it’d be 10776 by now. Google finance gives similar numbers.).
    Alternatively, if I go to google finance and plot ZCN performance and the mutual fund (MUTF_CA:GGF70144) performance for 1 year or 2 years (etc), the mutual fund curve is almost always higher than the ZCN curve.

    I am extremely confused… do I not understand ETFs at all? I would be completely sure that this is completely impossible, so clearly I am extremely confused about something…
  • Will Ashworth | 23 Dec 2014, 10:47 AM Agree 0
    Hi Adam,

    Thanks for the comment.

    Your confusion is understandable.

    You were comparing BMOs Canadian Equity mutual fund with ZCN.

    However, the comparison in the article is ZCN and the BMO Canadian Equity ETF Fund, which has ZCN at a 99% weighting.

    Here's the link to the BMO Canadian Equity ETF Fund - http://fundprofile.bmo.com/mutualfunds/profile/pdf?fundid=17698&lang=en_CA

    I think you'll find the performance of ZCN is higher.

    But you're right, it is confusing.

    Happy Holidays.
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