Archive | February, 2017

A New ETF Structure for Accumulators

ETF launches are generally unexciting these days: most new products focus on increasingly narrow niches or exotic strategies. But last week BMO unveiled an innovative ETF structure that may just have some lasting appeal. They launched a new share class of four existing short-term bond ETFs: called “Accumulating Units,” these new funds do not pay their distributions in cash like traditional ETFs. Instead, they reinvest all the interest payments immediately and increase the net asset value (and market price) accordingly.

An example will help. Consider a bond ETF with a unit price of $15 at the beginning of the year. Over the next 12 months it pays out 3% in interest and falls in price by 1%. The fund’s one-year total return would therefore be 2% (the 3% interest minus the 1% capital loss). If this ETF were available in both the traditional and Accumulating Units structure, both would report the same performance. But they would arrive there in different ways:

Traditional ETF
Accumulating Units

Unit price at beginning of year
$15.00
$15.00

Cash distributions (3%)
$0.45
$0

Reinvested distributions (3%)
$0
$0.45

Capital loss (1%)
-$0.15
-$0.15

Unit price at end of year
$14.85
$15.30

Value of ETF unit + cash
$15.30
$15.30

One-year total return
2%
2%

What they’re not

The idea of reinvested distributions is not new,

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Podcast 5: Master Class with the Millionaire Teacher

My newest podcast features an interview with Andrew Hallam, author of Millionaire Teacher, a compelling introduction to building wealth through smart saving and disciplined investing.

Andrew grew up in Canada, but he’s a citizen of the world. He spent several years as a teacher at the Singapore American School and has lived and travelled all over the globe. As this podcast goes live, Andrew is touring the Middle East to speak to expatriate investors about how to avoid getting fleeced by the financial industry. And he’s not being paid for his appearances: “I’m not a saint,” he writes on his blog. “But when I’m teaching people about money, I’ll do almost anything so others can learn.”

Andrew has an interesting backstory, which I featured in my MoneySense Guide to the Perfect Portfolio. He was both comically frugal and a tremendously successful stock-picker for many years. This combination of talents allowed him to amass a tidy nest egg in his 40s. “So what did I do after a decade of stock-picking success?” he told me. “Apply for a job as a Wall Street analyst?

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