By Tom Bradley
On the plane yesterday I was scanning the list of Canadian exchange-traded funds (ETFs). There were 145 funds on the list from four providers (BMO, Claymore, BlackRock and Horizons BetaPro). I know the numbers are higher now because I know of a few new ones that weren’t on the list and BlackRock just announced it was adding 6 sector funds to its iShares lineup.
A few things came to mind as I looked down the list:
The ETF providers have ceded the simplicity label back to mutual funds and wrap products. ETF-land is now a busy and complicated landscape.
- With BMO’s 40 funds, investors can get exposure to almost anything, including short, mid or long-term government bonds, junior natural gas stocks and a bank portfolio with covered-calls written against it. The only exposure BMO investors have trouble finding is foreign currencies. All but a few of the foreign funds are hedged back to the Canadian dollar.
- In general, it’s difficult to find foreign equity funds that aren’t hedged. In most cases, this has worked for clients, but with the Canadian dollar now at $1.04, this design feature will likely be less advantageous going forward.
- Claymore continues to be the only player who pays a trailer to advisors. The extra fee ranges from 0.5% to 1.0% per year.
- The Horizons BetaPro lineup is a marvel of modern financial engineering. There are leveraged Bull and Bear funds on everything you can imagine. I only detected one Bull/Bear pairing where returns looked out of whack. For one year, the Crude Oil Bear Fund was down 31.7%, while the Bull Fund was down 0.5%. This is an improvement from a few years ago when volatile markets caused a number of pairings to have negative returns in both funds.
- As the fund offerings continue to proliferate, I expect we’ll also start to see more fund mergers. In pursuit of first mover advantage, all four providers have brought funds to market that only have appeal to a few investors at a specific point in time. When it isn’t that time, the funds are uneconomic.
As I said in a posting this time last year (ETF Providers Have Cluttered a Pristine Landscape), “when investors are looking for simple and transparent, ETFs are no longer the default. There are still many clean, easy-to-understand ETFs, but they're harder to find among the proliferation of new products.”