Pape’s Q&A: Cashing in mutual funds, investing in IPOs

06-28-2021
Pape’s Q&A: Cashing in mutual funds, investing in IPOs

Gordon Pape answers readers’ investment questions

 

Your questions keep coming, so let’s dip into the inbox and answer some of them.

Cashing in mutual funds

Q – I have a few mutual funds in my RRSP portfolio with a total accrued value of $37,000. I have owned them for the last 15 years The MER for these funds range from 1.71% to 2.71%. The average for the five funds is 2.32%. These funds have good returns. 

Given the high MERs associated with these funds, I am considering cashing in and purchasing ETFs within my RRSP portfolio. Do you think this would a good move?

Also, I am 64 years and retired. What type of ETFs would you recommend? I do not have a company pension plan. 

Your advice is highly appreciated. – Chet P.

A – You are proposing to sell funds with good returns to buy cheaper ETFs. This could be a case of penny-wise, pound-foolish. You don’t say what the returns are, but you need to put them in context with what you are paying. You could end up with ETFs that cost less but don’t perform as well. I suggest you look at the returns of ETFs that may interest you and compare their returns over the long term with those of your mutual funds.

As for which ETFs to buy, if you go that route, look for those at the lower end of the risk scale. Since you have no pension plan, your RRSP may be the main source of your retirement income, so you don’t want to take unnecessary chances with it. – G.P.

Investing in IPOs

Q – I have a question from a relative newcomer to investing about buying into an IPO, in this case Telus International. I read in The Globe and Mail, prior to the stock trading, that it would be priced at $25, so I put in an order, again prior to trading, at $25. Of course, that trade did not complete, so my question is, who got the shares at their original price and how? And further, should I be smelling a rat? – James R.

A – Maybe not a rat, but it’s true the system of allocating initial public offerings does not favour small investors.

The best way to participate in an IPO is to deal with a full-service broker who has an allocation. Typically, the underwriters (or book-running managers as they also called) of an IPO are the conduits who bring the shares to market. There is a complicated mechanism for doing this, but for individual investors, it comes down to having a broker who has received an allocation of the stock from an underwriter.

In the case of a hot IPO like Telus International, the bulk of the issue likely went to institutional investors like pension plans. Any retail allocation would go to a participating broker’s best clients.

The lead book-running managers for the Telus issue were J.P. Morgan Securities and Morgan Stanley & Co. Also participating were Barclays, B of A Securities, and CIBC Capital Markets.

Next time you hear of a new IPO you’d like to acquire, advise your brokerage firm of your interest in advance and hope that they get an allocation. If you don’t have a full-service broker, the chances are slim to none. – G.P.

If you have a money question, send it to me at gpape@rogers.com and write Fund Library Question in the subject line. I can’t guarantee a personal response, but I’ll answer the most interesting questions in this space on a regular basis.

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.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2021 by The Fund Library. All rights reserved. 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.