2019 Top 10 stories on ETF investing
Total assets under management (AUM) in exchange-traded funds (ETFs) recently surpassed the milestone $200-billion mark.
The figure is remarkable for a variety of reasons. Not only is it more than double the $89.5-billion in client assets held in ETFs at year-end 2015, it’s more than 10 times the $19.4-billion in AUM held in ETFs at year-end 2008.
Inflows in ETFs were on pace to surpass those of mutual funds for the second year in a row at year-end. While the $1.6-trillion of client AUM in mutual funds still dwarfs those of ETFs, the trend for the latter is upward. In one year, client assets in ETFs have gone from one-tenth to one-eighth of those in mutual funds.
There is no denying that ETFs have become the go-to investment vehicle for many Canadian financial advisors and investors.
Here are 10 articles on investing strategies using ETFs that were published on Globe Advisor this past year:
Six easy ways to invest in real estate
Investors seeking the benefits of an income property without the hassles of being a landlord might want to check out real estate investment trusts (REITs). But investors can become even lazier landlords if they own ETFs that hold a basket of REITs. These investments have attractive yields because they distribute most of their taxable income to unit holders.
Looking for dividends? High-yield ETF picks are back in the spotlight
With central banks putting the brakes on interest rates, income-seeking investors are taking a fresh look at strong dividend-paying stocks. Picking high-yielding stocks can be difficult – as some companies may not be able to continue juicy payouts – so ETFs offer a more diversified way to invest in these securities.
Investments in water are on the boil
Water is all around us, yet it has tended to flow underground as an investment. That is, until recently, as global attention turns toward changing weather patterns. ETFs with water-related holdings have risen in value by as much as 20 per cent since the beginning of 2019. It’s hard to know exactly why, but some suggest it could be linked to growing interest in the impact of climate change.
Defensive ETFs can take the edge off a portfolio
It may be wise for investors to take some risk off the table. ETFs, with their diversified exposure to markets, can be one way for investors to hedge their bets. We asked three ETF experts for their top defensive picks.
ETFs keep up the pace, with much room to grow in 2020
Canadian investors love their ETFs. As their uptake continues to increase, where can financial advisors expect ETFs to go into 2020? And how can they meet the needs of ETF investors in a changing market?
What to do when an ETF goes belly up
The ETF death toll is rising as a record number have closed in recent years. Although investors may be dismayed to find out an ETF in their portfolio is scheduled to close, those who follow the industry closely say it hardly comes as a surprise as fund issuers look for spaces that haven’t already been covered by competitors.
Six monthly dividend ETFs for income-seeking investors
For yield-thirsty investors, there’s nothing like a steady pay cheque. Although it’s common for ETFs to pay quarterly distributions, more dividend-oriented funds now offer monthly payouts. These regular payments can help investors manage their cash flow better, provide faster compounding if reinvested and offset losses during market volatility.
Six consumer-staples ETFs to temper volatility
Investors seeking a safe haven from recession or market swoons can often find solace in consumer staples stocks. That’s because products such as groceries, toiletries and cleaning supplies are always in demand – even during a difficult economy. Companies in this space often pay healthy dividends and their shares are typically less volatile. However, the risks range from rising interest rates to company-specific challenges. As ETFs offer an easy alternative to choosing stocks, we asked three ETF experts for their top picks in this sector.
As markets churn, six precious-metals ETFs
When gold glitters, it can take investors by surprise. But while the price of gold is unpredictable, owning it can help diversify a portfolio because it can move in the opposite direction of stock markets. Instead of buying bullion or gold-mining stocks – which can have some weak correlation to the market – ETFs offer easier exposure to the asset.
Five big trends and the ETFs that track them
ETFs have evolved significantly from investments that track broad indexes to a plethora of theme-based plays such as clean energy, currency hedging and social media. ETF providers regularly introduce products that reflect market trends, such as the cannabis ETFs launched in the run-up to Canada’s legalization of recreational marijuana, or the new gender-diversity products focused on companies that show a commitment to putting women on their boards and in top leadership positions.
The family office for Mark Zuckerberg and Jack Dorsey backs French rival to Microsoft Excel – CNBC
French business planning software startup Pigment has raised $88 million in a funding round led by ICONIQ, the private investment fund that manages the money of tech billionaires such as Mark Zuckerberg and Jack Dorsey.
Pigment is best known for its business planning and forecasting platform that’s designed to be more user-friendly than Microsoft’s spreadsheet software Excel.
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The company, co-founded and helmed by dual CEOs Eleonore Crespo and Romain Niccoli, told CNBC it planned to use the funding to expand its reach in the U.S. and artificial intelligence.
Venture capital firms Felix Capital, Meritech, IVP, and FirstMark also participated in the funding round.
Pigment counts the likes of Klarna, Miro and Tommy Hilfiger owner PVH as its customers.
The company’s tools are mainly used by finance teams to plan and make financial and business decisions. As well as Microsoft, Pigment also views enterprise software tools from giants like Google, SAP and Oracle as rivals.
Crespo said that, in 2022, Pigment grew its revenues by 600% and its total user base increased tenfold — and insisted it was well positioned to compete with behemoth incumbent Microsoft.
“We not only have users in the finance team but outside of finance, and that’s super interesting for investors to hear that we are not a finance platform but a business database that can serve any business leader out there from HR to sales to marketing, to R&D [research and development],” she said.
“We are here to sell [to] any business leader. And not only that, but they have heard from their portfolio companies that we managed to serve the most forward-looking companies out there.”
Pigment also plans to use the latest influx of money to invest in the development of AI products.
It introduced a new service called Pigment AI last month, on the heels of heightened buzz surrounding AI and products like ChatGPT, which lets clients query data, identify patterns and automate analysis and reporting.
Crespo said there are no plans to increase headcount substantially and Pigment was instead looking to grow in a more sustainable way, given the pressure from investors on businesses to achieve profitability in favor of breakneck growth.
Saudi Arabia’s Public Investment Fund just reshaped pro golf. It’s not stopping there
Saudi Arabia’s mountain of cash has upended the world of professional golf. But that is only a small sliver of the money it is sinking into a number of prominent businesses elsewhere around the globe as the kingdom moves to diversify away from a dependence on oil income – and as the petro-kingdom tries to achieve its political goals.
The Saudi Public Investment Fund is a government-controlled fund that has $650 billion in assets under management, according to its most recent filing. It is aiming to top $1 trillion within a few years. A state-owned investment fund like the PIF is not unique. It is ranked only the seventh-largest in the world, according to the Sovereign Wealth Fund Institute.
While some of those are pension funds for a country’s citizens or public employees, others, like the PIF, operate the way a private sector investment firm might, trying to make money through a diversified portfolio of investments.
But what makes Saudi Arabia’s fund different from those private investment firms is that since the country faces widespread condemnation for its human rights record, its investments in sports and other entertainment companies can be seen as an attempt to polish that tarnished reputation.
The PIF’s creation of LIV Golf a year ago, reportedly at a cost of $2 billion, attracted many of the sport’s top players away from the US-based PGA Tour and Europe-based DP World Tour by offering big dollar prize money. It led to a year-long legal battle that banned LIV golfers from the established tours and brought some unwanted attention to Saudi’s human rights record. Critics of LIV Golf accused the Saudis of backing the new tour as a form of “sportswashing” its reputation.
But the legal battles, acrimony and competition for the best golfers between LIV and the PGA and DP World Tour suddenly ended Tuesday with the announcement that the three would form a combined for-profit company. The PIF plans to make undisclosed additional investments into the entity.
Soccer, video games and other investments
The chairman of the new golf series will be the chairman of state-owned petroleum company Saudi Aramco, Yasir Al-Rumayyan, who also controls English soccer team Newcastle United and is himself a governor of the PIF.
The Saudis have also been throwing big dollars at some of the world’s best known soccer players, wooing legends such as Cristiano Ronaldo and Karim Benzema to play in Saudi Pro League.
The investment in sports is not a vanity play, according to Al-Rumayyan.
“It all makes financial sense to us. We don’t like to subsidize things,” he said on an interview on CNBC Tuesday announcing the deal with the PGA.
But whether the Saudis’ investments are driven by a desire for profits or good publicity, what’s clear is that pro sports are not the only place where the Saudis are flexing their financial might.
For example, it has a total of $7.5 billion in investments in several leading video game companies, according to its most recent filing, giving it a 9% stake in Electronic Arts
(EA), a 7% stake in Take-Two Interactive and nearly a 5% stake in Activision Blizzard
(ATVI). It also owns more than 5% of Live Nation
(LYV), the concert promoter and owner of Ticketmaster, and significant stakes worth hundreds of millions each in cruiser operator Carnival Corp
(UBER) and Zoom
Its biggest US investment is in upstart electric vehicle maker Lucid
(LCDX). The PIF owns 60% of Lucid
(LCDX)’s stock, worth $7.6 billion as of Tuesday’s close. Lucid
(LCDX) recently announced the PIF would invest another $1.8 billion in the company to help fund its operations.
In 2018 when Elon Musk was thinking about taking Tesla
(TSLA) private, he sought funding from the PIF, which already had a stake in Tesla
(TSLA) at that time. It no longer lists Tesla
(TSLA) as one of its holdings. But last year it helped Musk with his $44 billion purchase of Twitter by agreeing to roll over its existing $1.9 billion investment in the social media platform to the new Musk-controlled company.
Not all of the PIF investments have been publicly disclosed. For example it’s not clear exactly how much it invested to start up LIV Golf. And the Washington Post has reported that it invested $2 billion into a private equity firm created by Jared Kushner, Donald Trump’s son-in-law, soon after Kushner left his position in the White House in January of 2021. CNN has not been able to confirm that report, but what is known is that LIV Golf tournaments have been held on Trump Organization properties.
Saudi Arabia and human rights criticisms
Many of these investments, including the creation of LIV Golf, have sparked controversy.
The PIF is chaired by Mohammed bin Salman, the Crown Prince of Saudi Arabia. Bin Salman is the man a US intelligence report names as responsible for approving the operation that led to the 2018 murder of journalist Jamal Khashoggi. Bin Salman has denied involvement in Khashoggi’s killing.
In addition, the US State Department says the Kingdom’s dismal human rights record includes free speech restrictions, torture, political prisoners and enforced disappearances.
And families of some of the victims of the Sept. 11 terrorist attack decried the news of the LIV-PGA agreement Tuesday. Some have accused the Saudi government of complicity with those attacks. Fifteen of the 19 al Qaeda terrorists who hijacked four planes were Saudi nationals, but the Saudi government has denied any involvement in the attacks. The 9/11 Commission established by Congress said in 2004 that it had found “no evidence that the Saudi government as an institution or senior Saudi officials individually funded” al Qaeda.
– CNN’s Coy Wire, Jack Bantock and Steve Almasy contributed to this report
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In a period of market volatility, higher interest rates and inflation, more high-net-worth investors desire higher yield and income-producing products for their portfolios that go beyond the traditional stocks or bonds, according to a new report from Investor Economics.
Covered-call exchange-traded funds (ETFs) and private credit are two types of investments investors mention in particular, says Carlos Cardone, managing director of Toronto-based Investor Economics, an ISS Market Intelligence business.
Covered-call strategies are designed to provide exposure to a portfolio of stocks while writing covered calls against them to earn premiums, says Darcie Crowe, senior portfolio manager and senior wealth advisor with Crowe Private Wealth at Canaccord Genuity Wealth Management Canada in Vancouver. She cautions clients to look beyond the attractive yield.
Some clients don’t fully recognize the downside risks of the strategies, along with the fees involved. They also don’t understand they’re sacrificing some of the upside in exchange for income, she adds.
“We want to make sure clients are looking at it from a total return perspective,” Ms. Crowe says. “If we have a positive outlook on the underlying stocks, our preference is typically to hold them for the long term, collect the dividends and not cap the upside potential through a covered-call strategy.”
Andrew Feindel, portfolio manager and investment advisor with Richie Feindel Wealth Management at Richardson Wealth Ltd. in Toronto, says clients need to comprehend all the nuances of what they’re buying. He recently landed a few clients who had a bunch of covered calls.
“They didn’t understand why they weren’t protected when markets went down,” Mr. Feindel says. “There’s this whole idea that covered calls protect you and they don’t. If the markets go down, you’ll lose that amount. When the markets go up, you just got a higher dividend because you’re receiving those options.”
Private credit offers strong yields but also higher risk
In terms of private credit, Ms. Crowe says it has been a popular asset class for high-net-worth clients for several years, as some move away from the traditional 60/40 equity-bond portfolio to explore alternatives.
“They’re looking for products that can be included in a portfolio to generate income through a diversified return stream,” she says.
Ms. Crowe positions it for a “very unique investor profile.” For starters, the investor must be accredited to have access to these products and have a minimum amount to invest in them – typically around $25,000.
Private credit funds provide access to a portfolio of loans, typically to private corporations in the small- to mid-cap space, Ms. Crowe explains, noting that interest rates are typically higher than traditional bank loans.
“Private credit portfolios would be considered higher risk because, usually, the loans within these portfolios are made to companies that aren’t able to access loans from the bank for a variety of reasons,” she adds.
While private credit offers strong yields, the underlying loans are illiquid and have what Ms. Crowe calls “the opposite characteristics of high-interest savings accounts, in many aspects,” which clients can access at any time. In this case, private credit redemptions are typically available on a quarterly basis, sometimes longer, and often have a minimum initial hold period of up to a year.
“It’s important for clients to know that this is a long-term investment horizon,” she says. “It needs to be used specifically in those situations in which clients have no need to draw on those funds in the immediate term.”
Mr. Feindel expects to see more of these types of funds, especially as institutions add to their private equity exposure in pension plans.
“It will become democratized in the sense that it’s not just institutions anymore but individuals purchasing,” he says.
Opportunities in private real estate, preferred shares and bonds
Another trend Ms. Crowe has seen is more investment toward private real estate portfolios. She notes that multi-family residential real estate has been a strong performer and provides attractive yields and cash flow, while also having a limited correlation to equity markets.
“Given the strong rents we have seen in Canada, they have demonstrated solid net operating income growth over the past several years,” she says.
Rate-reset preferred shares are another asset class Ms. Crowe likes due to the attractive tax-efficient yield. She says high-quality companies have preferred share dividend yields ranging from 6 to 8 per cent.
“These preferred shares will typically reset their dividend payment every five years based on a spread above a government bond with a similar term,” she says.
“Looking ahead, many of these preferred shares are going to be resetting at yields significantly higher than at their previous reset date, when government bond yields were exceptionally low.”
That creates a great opportunity for strong yield, in addition to capital gains potential as dividends reset higher, she adds.
Meanwhile, Mr. Feindel sees a resurgence in short-term bonds occurring this year.
He says the average bond lost 14 per cent last year, which he notes was “not just their worst year on record,” but the worst year by far due to rising interest rates and other factors.
Now that interest rates may stabilize, there could be an opportunity for a closer look.
“A lot of them are paying 5.8 per cent right now, yield to maturity, and then they’ll likely do well when interest rates start going down,” he adds.
Investor Economics’ Mr. Cardone also says not to count out traditional fixed-income products.
“If we can continue to see this environment where inflation has been easing, and have stable interest rates, we’re going to start to see a massive comeback to fixed income,” he says.
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