Archive | July, 2015

Ask the Spud: My ETF Is Shutting Down

Q: I received a notice that an ETF I own will be closed within the next few months. Is it better to sell it now or wait until the termination date? – S.H.

ETFs are now available for just about every niche sector and exotic asset class, so it shouldn’t be surprising when some of these fail to attract investor dollars. If an ETF cannot attract enough assets to be sustainable within a couple of years, the provider may decide to shut down the fund.

ETF closures have been relatively uncommon in Canada, but this year has seen several death sentences. In June, BlackRock announced it will be shuttering six products, including the iShares Broad Commodity (CBR), the iShares China All-Cap (CHI), iShares Oil Sands (CLO) and the iShares S&P/TSX Venture (XVX). Earlier in the year Horizons also terminated its broad commodity ETF as well as couple of its leveraged ETFs.

What should you do if you learn that an ETF you own will soon be shut down? To help answer this question, I reached out to Mark Noble, ‎head of sales strategy, communications and public relations at Horizons ETFs.

Continue Reading 21

How Contributions Affect Your Rate of Return

Whenever I update the returns of my model portfolios, readers ask how the performance would have been different had they added money to the portfolios money each month. This question gets to the heart of the difference between time-weighted and money-weighted returns, which I introduced in my previous post.

In our new white paper, Understanding Your Portfolio’s Rate of Return, Justin Bender and I explain the differences between these two methods using two hypothetical investors with a $250,000 portfolio: the first makes a single $25,000 contribution while the other makes a $25,000 withdrawal. Now let’s look at a different example that includes monthly cash flows.

A tale of two accounts

Meet Buster, an investor with an RRSP and a TFSA that both hold an index fund of Canadian stocks (I’ve used the MSCI Canada Investable Market Index for the calculations.) At the beginning of 2014, Buster’s RRSP had a balance of $200,000 and he made $500 monthly contributions throughout the year. Buster’s TFSA has valued at $30,000 at the beginning of the year and he made a single lump-sum contribution of $10,000 in September.

At the end of the year,

Continue Reading 20

Calculating Your Portfolio’s Rate of Return

Perhaps no number is more important to investors than the rate of return on their portfolio. Yet this seemingly simple calculation is fraught with problems. If you’ve made contributions or withdrawals during the year, calculating your rate of return is not straightforward. What’s more, there are several ways to perform the calculations: the results can differ significantly, and each method has strengths and weaknesses. No wonder so many investors have no idea how to measure or interpret their returns.

In our new white paper, Understanding Your Portfolio’s Rate of Return, Justin Bender and I introduce the various methods used to calculate a portfolio’s rate of return, explain how and why they can produce different results, and help you determine which method is most appropriate to your circumstances. Justin has also updated his popular calculators, which you can download for free on the new Calculators section of the PWL Capital website.

Time and money

Rate of return calculations fall into two general categories: time-weighted and money-weighted. If a portfolio has no cash flows (that is, the investor makes no contributions and no withdrawals),

Continue Reading 56

Raining on the All Seasons Portfolio

Investors are hungry for success stories, especially tales that include high returns with low risk. And the investment industry is always happy to stoke that appetite.

One of the most popular stories today is the so-called All Seasons portfolio, whose virtues are trumpeted in the massive bestseller Money: Master the Game, by motivational speaker Tony Robbins. The book has been out since last November and I thought the hype would blow over quickly, but I’m still getting inquiries about it, so I thought I’d take a closer look.

The All Seasons portfolio was created by Ray Dalio of Bridgewater Associates, one of the largest hedge fund managers in the world. It’s based on Dalio’s similarly named All Weather fund, which reportedly has more than $80 billion USD in assets. The portfolio has the following asset mix:

30%      Stocks
40%      Long-term bonds
15%      Intermediate bonds
7.5%     Gold
7.5%     Commodities

In a backtest covering the 30 years from 1984 through 2013, the All Seasons portfolio had an annualized return of 9.7% (net of fees) and only four years with a loss.

Continue Reading 35