I am in Montreal attending the Inside ETFs Canada conference. I will be participating in a panel session on ETF model portfolio creation for a few scenarios. It should be fun and interesting. I am ‘up against’ some very seasoned professionals who have extensive knowledge with respect to financial planning and advanced portfolio modelling. You could say I will be the voice of the couch potato self-directed investor and the general playbook or framework that many of us follow.
I will guess that it will be simplicity vs complexity. And that battle is a theme that strikes me as the biggest observation with this conference and perhaps the state of the ETF nation.
US and Canadian markets looks great.
Brian Belski, Chief Investment Strategist at BMO Capital Markets, kicked things off with an entertaining presentation and an optimistic take on US and Canadian stock markets. Brian’s take is that while the US is in the longest bull market in history, there might be much more to come, there is more room to run. This bull market has that Goldilocks effect – it’s not too hot and it’s not too cold. It’s all quite tepid actually. Apparently it’s the expansion period with the 4th slowest GDP growth on record. There’s just enough growth and Brian sees healthy balance sheets in the US and in Canada.
Nobody likes Canada! They left in 2014.
Brian also likes Canada. He feels the market is ready to continue with its recent robust performance. That said, US and International investors have left. Canada is a hard sell. But again, Brian sees strong fundamentals and perhaps more good months and years to come. We saw a chart showing Canadian market earnings at a record high. Of course, we should always keep in mind that we never truly know where and when markets will turn.
Brian acknowledged one of my major themes that the Canadian oligopolies are unique and are a great place to invest. Starting with the big 5 Canadian banks he called them the Cartel and made a wonderful and entertaining analogy to the 5 families in The Godfather sitting down for a drink and having a little chat on how to divvy up the spoils.
Brian states that Steve Eisman (famous for The Big Short on the US banks leading into the Financial Crisis) is way offside with respect to shorting some of the Canadians banks. I have penned on that subject a few times on Seeking Alpha. Here’s Will Steve Eisman’s Big Short On The Canadian Banks Become The Big Hurt?
Not sure what movie we’ll use or what we will call the oligopolies in the Telco sector, grocers, energy/pipelines and railways? I wanted to ask the question to the ETF creators – where’s the Canadian oligopoly ETF? It would be a concentrated portfolio of perhaps less than 20 stocks. Ticker CRTL?
The Canadian Robo Advisors are misunderstood.
It may not be surprising that many of the wealth managers dismiss the Canadian Robo Advisors. There is not a full appreciation of the advice services offered at some of the Canadian Robo Advisors. These digital wealth managers should not be taken too lightly in my opinion. These folks know that the future is a hybrid blend of robust financial planning and coaching and digital wealth management. At the core will be low cost portfolios with a mix of core index, active and smart beta or factor-based ETFs. Just as many of the banks and traditional wealth managers are trying to ‘digitize’, the Robo’s are beefing up their advice offerings. The traditional wealth managers and Robo’s will come at this from opposite ends, but they’ll meet in the middle. They’ll team up as well, and that is already a trend.
And we should keep in mind that many Canadians do not need robust financial planning. They are scrambling just to fill even a modest portion of their RRSP and TFSA space. ‘Advice light’ can work for many.
Related post: Who is investing in ETFs in Canada?
The Battle: Simplicity vs Complexity in the Land of ETFs.
Indexing and the ETF solutions were born with the marriage of simplicity and low cost. But give some really smart people a lot of time and money and they will do what they will do – they will work really hard to try to make things better and perhaps more complex.
I was chatting with Yves Rebetez about this and he stated that should be no surprise. Look at every other industry or field. In medicine and technology for example there is the relentless pursuit of discovery and improvement. Does that work in the land of investing? As was mentioned in one of the presentations, there are only 3 asset classes. Cash, bonds and equities.
There are now over 900 ETFs in Canada. The number of ETFs is growing at an alarming rate. It was even mentioned a few times that we now have the ‘Factor Zoo’. While there are only 6 recognized factors that have been extensively studied, and they apparently all beat the US S&P 500 over a 30-year period. Financial academics have identified several hundred more on the factor front. How many ETFs does an investor need?
Even with respect to portfolio building, many are attempting to employ very sophisticated timing and switching models that often includes trying to time or predict certain stock and bond market events with niche factor-based ETFs. That theme exists in the equity and fixed income sides of the coin.
Let’s not scare off investors.
Jack Bogle of Vanguard suggested that investing should be simple and cheap. The world’s greatest investor, Warren Buffett, suggests that investors should simply buy the broad market indices and keep the fees rock bottom.
While I am a fan of the core factors I fear that more expensive and more complicated is not a move in the right direction. That’s not the brand voice, that’s not the brand appeal.
We should remember Mr. Bogle, investing should be simple and cheap.
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From the lovely city of Montreal, Dale @ firstname.lastname@example.org