Archive | March, 2017

How TD Put the “Managed” in ETF Portfolios

What Canadian bank was first to launch a line of ETFs? You might think it was BMO, which is by far the biggest bank in the industry today, with more than 70 ETFs and some $37 billion in assets. But in fact it was TD, who were ahead of the curve when they created a small family of ETFs way back in 2001. Five years later, with truly terrible timing, they shuttered those ETFs because of lack of interest. Of course, the industry exploded in popularity almost immediately afterwards.

TD re-entered the ETF marketplace in 2016 with six funds covering the core asset classes: Canadian, US and international stocks (the latter two available with or without currency hedging) and Canadian bonds. The ETFs were copycats of what’s long been available from iShares, BMO and Vanguard, and the launch had almost no fanfare: one suspects TD just wanted to provide another option for their advisors who had been fielding questions about ETFs from clients.

But this week TD launched something innovative: a lineup of five mutual funds that use the bank’s ETFs as their underlying holdings. Each has a different target asset allocation:

Fund name
Bonds
Stocks

TD Managed Income ETF Portfolio
70%
30%

TD Managed Income &

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Podcast 6: Wishing Upon a Morningstar

Are truly active managers more likely to beat the market than those who stay closer to their benchmark index? In my latest podcast, I discuss this idea with Christopher Davis, a strategist and researcher at Morningstar Canada.

The idea of active share was introduced in a 2009 paper called How Active is Your Fund Manager? A New Measure That Predicts Performance, by Martijn Cremers and Antti Petajisto. For example, a large-cap US equity fund that holds only half the stocks in the S&P 500 would have an active share of 50%. An index fund, by definition, has an active share of zero.

The researchers presented evidence that the most active funds “significantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence.” A year later, Petajisto published a follow-up paper called Active Share and Mutual Fund Performance, which included more support for the idea that the most active stock pickers can be expected to add value.

Both papers take aim at so-called closet index funds, which charge the higher fees one expects for active management yet differ little from their benchmark.

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