Fund Library Q&A with Gordon Pape
Questions on thinly traded ETFs, bonds, high interest ETFs, CI’s junk credit rating, and annuities
If you have a money question, send it to email@example.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Here are a few questions I’ve received recently.
Wants an ETF with more volume
Q – You discussed the iShares Core S&P US Total Market ETF (TSX: XUU) recently in your newsletters. I have not invested in it because I find the daily volume is too low. Do you follow a similar ETF that trades on the TSX with a higher daily volume? Thanks for your time. – Pat H., Renfrew, ON
A – XUU has an average daily volume of 17,887. That’s low but not unreasonable. And it really doesn’t matter because in the case of ETFs the company treasury can issue new units to meet demand.
But for more trading activity, look at the Vanguard US Total Market Index ETF which trades on the TSX under the symbol VUN. Its mandate is much the same as that of XUU, and the average daily volume is 45,225. This version of the fund is unhedged (there is also a hedged version).
However, VUN has a management expense ratio (MER) of 0.17%, compared with 0.08% for XUU. That contributes to slightly higher returns for the iShares entry. So, take your pick. More volume or a somewhat better return. – G.P.
Q – My 80-year-old father has a decent chunk of his investments in a non-registered account with a robo-advisor, in their conservative portfolio (30% equity/70% fixed). The bond holdings have tanked over 20% since he started investing with them in summer 2020. Thankfully, my father is not dependent on these investments to meet his day-to-day expenses.
It's been suggested he should get out of bonds, but this would result in significant capital loss and also of course eliminate the opportunity to recoup his bond fund losses over the months/years ahead. Do you think he should just stay the course and wait this out? – Neil P.
A – No one can say with certainty where interest rates will go from here but the consensus seems to be that they are at or near their peak. Once they start to decline, bond price will rebound, and your dad will start to recover some of his losses. Selling now would be a bad move. – G.P.
High Interest Savings ETFs
Q – What do you think of High Interest Savings Account (HISA) ETFs in the current investment environment? Any suggestions about where to get the best rates? – Dale Y.
A – These ETFs have become very popular with investors recently with $2.7 billion in new money pouring in during the first quarter, according to Investment Executive.
HISA ETFs typically pay higher rates of return than savings accounts or money market funds, because of the negotiating power of their sponsors due to the large cash inflows.
Several companies offer them. Perhaps the best-known is the CI High Interest Savings ETF (TSX: CSAV), which closed on Oct. 26 at $50.02. The payout varies from one month to the next. The September payout was $0.2120 per unit and the trailing 12-month yield of 4.8% at the current price. But that’s misleading because recent payments are much higher than those of a year ago because of the interest rate increases we have seen.
As for which fund has the best rates, that will vary from month to month. Find one you’re comfortable with and stay with it. Remember, if rates start to pull back, so will the distributions from these ETFs.
One more point. Some financial institutions limit the sale of these funds to their own products. Ask your broker about which ones are available to you. – G.P.
CI’s credit rating
Q – I bought CI Gold+ Giants Covered Call ETF – Hedged (TSX: CGXF) when you originally recommended it in your newsletter. I recently saw that CI Financial’s credit rating has been downgraded to junk status. Does this adversely impact CGXF? Best regards. – John F.
A – CI’s credit rating, which S&P Global Ratings cut to junk status this past May, has no effect on investors in its mutual funds or ETFs. These assets are held by trustees in separate accounts. The money is not co-mingled with CI’s corporate funds. – G.P.
What about annuities?
Q – Thanks for your balanced outlook and advice for senior investors. I have a friend who enjoys looking at stocks and markets but finds it difficult to follow the market consistently due to issues with his eyes. He is considering investing in annuities with recent rise in interest rates. What is your advice: annuities or a balanced portfolio of ETFs, GICs, etc.? He is in his early seventies and wouldn’t mind leaving his money to his children. – Sudhir D.
A – You’re right. Annuities are paying more than a year ago, and the income is guaranteed until death.
But if your friend wants to leave anything for the children, he will have to give up some income if he wants to move to annuities. Normally, when the annuitant dies, payments end, and there is no residual capital to pay to the estate. You can opt for a guaranteed annuity, which means that if you die before the guarantee expires (typically 10 years), the remaining payments will go to designated beneficiaries or the estate. There is no refund of capital, just a continuation of payments until the guarantee expires.
If you outlive the guarantee period, the heirs get nothing.
I appreciate the vision problem would create difficulties for your friend in terms of following markets. But he might consider using a financial advisor handle his wealth. With appropriate due diligence, I’m sure he could find someone appropriate. – G.P.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.