Finally started the switch from BMO to PC Financial. Switching banks is hard, especially when you have 2 automatic pay-cheques and 9 automatic bill payments/withdrawals set up per month. But this week we officially got the ball rolling by sending new void cheques to all the appropriate people, by fax, mail, or online. We made sure that there is enough money in both the BMO and PC accounts before switching as I’m sure the timing between our pay-cheques and the bill payments/PADs will be off a bit and we want to avoid those NSF fees. It’s a pain in the ass, but once it’s all over with, I won’t regret making the switch.
As reported by the Canadian Capitalist, TD ETFs are history. The TD announcement says that “the decision to terminate the Funds is based on a lack of investor interest in the Funds and low trading volumes since their creation.” The TD ETFs (TAG and TAV especially) offered some real choice for semi-passive index investors in Canada. TAV (TD Select Canadian Value Index Fund) tracked the Dow Jones Canada TopCap Value Index and TAG (TD Select Canadian Grows Index Fund) tracked the Dow Jones Canada TopCap Growth Index.
With no foreign limits in RRSPs anymore, it is easy for Canadians to get any US and international ETFs they like. Barclays iUnits, however, is the only provider of ETFs for the domestic market. The selection is mostly limited to the S&P TSX 60 Uncapped Index (XIU) and the S&P TSX Composite Capped Index (XIC), a Canadian Mid-cap Index (XMD), and now, a Canadian Dividend Index Fund (XDV). From this article in the National Post,
Advisors who specialize in creating ETF portfolios don’t view TD’s departure as a serious setback for investors. The TD ETFs “never took off and they never really put much marketing effort into it anyway,” says Fred Kirby, president of Armstrong, B.C.-based Dimensional Fund Advisors. In his permanent portfolios Kirby is substituting BGI’s new iUnits Dividend Index fund (XDV/TSX) for the TD Canadian Value ETF (TAV/TSX).
I was thinking about buying TAV myself, but may have to look at XDV a little more closely as well as a way to invest stocks with higher dividend-yields and slightly lower P/E ratios compared to XIC. I still wish there was more choice in the Canadian ETF and index market and if I had a bit more money I would forget ETFs altogether and just make my own index (0% MER), starting with equal amounts of the top 10 holdings of the large-cap Canadian indexes.
For those who don’t already know, I am not a fan of market-cap-weighted indexes like all the S&P Canadian indexes and the US S&P 500. In the US S&P has the S&P Equal-Weight Index and there is an ETF that tracks it, the Rydex S&P Equal Weight ETF. In Canada there is no such index provided by S&P and no ETF. I knew that there was no Canadian ETF in existence that was equal-weighted but I thought that there must be at some theory, data-mining, or an informal index out there.
Yesterday, I finally found something: an equal-weighted index for the S&P TSX 60. After what seemed like hours digging through Google search results and varying the keywords I gave to Google, I finally found a company called Shaunessy Investment Counsel in Alberta that has formed such an index which they invest in using their clients’ money. The performance as of September 30, 2005 is shown here, where they also mention that the index is “equal weighted, re-balanced quarterly.” An older Shaunessy news article I found on Google compared this index to the S&P TSX 60 Index and shows excellent results, which I will reproduce below:
Canadian Large Cap versus Index Comparison
Rates of Return Ended June 30 2004
|Q2 04||Year to Date||One Year||Three Years||Five Years|
|TSX 60 TRI||-0.1%||4.1%||22.1%||4.1%||4.7%|
|SIC 60 EWI*||2.5%||4.3%||26.2%||8.9%||9.9%|
| Source: RBC Capital Markets, Mercer Investment Consulting, Shaunessy Investment Counsel (SIC)
* Price Index only constructed by Shaunessy Investment Counsel
The “Mercer Median” is the median performance of a whole bunch of mutual funds, from the “Mercer Institutional Pooled Funds report.” They also note that “the EWI is a price index and does not include dividends which would add at least another 1-1.5% to total returns.” The results are even more impressive if you take into account the dividends paid.
Don’t get your hopes up about buying a piece of the index from Shaunessey. They require a $2 million minimum to be a client. To just buy the index and not have a “fully-managed” portfolio with them, you will need to invest $6,666,666 million (0.15% as percent of assets, minimum fee is $10,000). More evidence that the more money one has, the more access one has to better investment advice and services.
It is possible to create your own S&P TSX 60 Equal-Weighted Index (EWI), however, paying $50 commission for each stock would become prohibitively expensive. To keep your commissions to 1% of your initial purchase you would need $300,000 total assets. And rebalancing every quarter would also become very expensive.
Another way to have an approximation to Shaunessey’s index would be to buy certain amounts of sector ETFs and rebalance the allocation of each ETF regularly; however, within each sector ETF the stocks would still be market-cap-weighted.
Finally went and set up a PC Financial account last Sunday. This involved finding the nearest Great Canadian Superstore (equivalent of Loblaws/Zehrs for those of you in Ontario) which isn’t so nearby to where we are. It was all pretty painless. We did it on a Sunday at 5:30pm and the lady who helped us out was really nice, and even stayed a bit after their closing time of 6pm to help finish everything up. I really like the fact that they are open on weekends at all the locations in the Vancouver area that I looked at. They are also open late on Thursday and Friday night. I don’t expect to go into the PC Financial “Pavilion” much, but at least the hours are a lot better than the big banks. We set up two no-fee chequing accounts (I’ll describe in a future post why I like 2 chequing accounts). This gives us unlimited Interac transactions, transfers, bill payments, direct deposits, and withdrawals at any CIBC or PC Financial ATM. We are getting free cheques mailed to us for both accounts. I’ve called the 1-866 number twice so far and both times the people I talked to were very friendly and I never waited more than 2 minutes to get through to someone. We don’t need the PC high-interest savings accounts because we use ING Direct (my wife and I can each have up to 4 Canadian dollar accounts at ING making it easy to save up for many different “things” at once) and we can shift money between our ING Direct accounts and either PC Financial chequing account as much as we want now. As soon as we get the new PC cheques in the mail, we just have to send them both off to ING and the chequing accounts will be linked to ING.
The only thing left for us to do is to switch our direct deposits and pre-authorized bill payments to PC from BMO. I’ll most likely arrange this to all happen around the same time, keeping at least some money in each of BMO and PC, just in case the timing is off a bit on the switch.
I just found this, Financial Service Charges Calculator, provided by the Government of Canada! It’s provided by the Office of Consumer Affairs. It looks like PC Financial is the cheapest by far for my needs. Using a grossly exaggerated estimate of my monthly financial transactions (I exaggerated it a lot because I expect to use Interac more now that I don’t use credit cards), I got the following results:
PC Financial – $1.50
BMO – $25
CIBC – $14.45
HSBC – $25
Scotiabank – $29
TD Canada Trust – $14.45
This assumed only 1 withdrawal from another bank’s INTERAC bank machine. This assumption may be incorrect for some of these banks which don’t have as many ABM’s available to use. Most of the plans above are unlimited plans. PC Financial is clearly the cheapest. I’ve also neglected the fact that cheques from PC Financial are free, and also, CIBC and PC Financial appear to have one of the largest ABM network’s in Canada according to this article (BMO is not listed) which means that I will need to use the other banks’ machine’s less often. I just did a search for CIBC/PC Financial ABMs in Vancouver and it sure turned up a lot.