Friday, August 30, 2019

Short Takes: ETF Deep Dive, E-Series Changes, and more

Here are my posts for the past two weeks:

From Here to Financial Happiness

Reader Question: Should I Draw Down My RRIF?

Here are some short takes and some weekend reading:

Canadian Couch Potato does a deep dive into how ETFs work in possibly his last podcast. He also defended cap-weighted index investing against a flawed argument and cleared up a misconception about the fees in asset-allocation ETFs. Unfortunately, he undermined his credibility somewhat with a reference to Dalbar’s nonsensical calculation of investor underperformance. Dalbar likes to say they just have a minor disagreement with their critics about the minutiae of their calculation methodology. The truth is that if you buy some units of a 10-year old mutual fund, Dalbar docks your performance for having missed out on the previous decade of returns.

John Robertson reports that changes are coming to TD’s e-series index mutual funds. I’m wondering whether this change will generate any capital gains for non-registered investors.

Scott Ronalds explains why Steadyhand is unlikely to buy into any upcoming IPOs, no matter how excited other investors get.

2 comments:

  1. Thanks Michael, and a very good question! There likely will be at least a slightly higher than normal gain realized within the fund to shift to the new index. A bigger question I guess is if they can now hold ETF units, if they will sell individual holdings to buy the ETF instead, or if that will just be for future growth in assets.

    From the document:

    “If TD Canadian Index Fund were to shift some or all of its assets from the current investment in underlying Canadian equities to TD Canadian Equity Index ETF, this may result in TD Canadian Index Fund realizing capital gains. While the intention is to transition TD Canadian Index Fund’s holdings to TD Canadian Equity Index ETF, no immediate shift will be made if there is a material taxable impact to unitholders. In the case of material tax consequences, the transition to TD Canadian Equity Index ETF will be done in such a way, while using up any available tax loss carry forwards, to limit the tax impact to unitholders. This may take several years.”

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    1. @Potato: Thanks for answering my question. It seems clear that although there might be higher than normal capital gains passed to unit-holders, it won't be huge.

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