Proposed Changes to XIC, XGV, XSP, XIN

Barclay’s is having a special meeting of unitholders, to decide on proposed changes to iUnits ETFs: XIC, XGV, XSP, XIN [pdf]. The most significant proposed change is to have XIC track the S&P TSX Composite rather than the TSX 60 index. Reasons given are:

  1. More securities and more diversified exposure to large-cap, mid-cap and small-cap stocks improves diversification which helps reduce volatility risk.
  2. The Composite Index is the most widely used benchmark of Canadian equity performance, which improves investors’ ability to compare results to other Canadian equity funds.
  3. Offering funds which track the S&P/TSX 60 Index and the S&P TSX Composite Index provides investors in iUnits funds with more choice.
  4. The increased fee reflects the time, expertise and expense involved in managing a portfolio of over 200 securities versus 60 securities.

XIU, the non-capped S&P TSX60-tracking ETF will still exist, it is only the capped XIC which is being changed.

XGV is becoming more diversified, to include provincial, municipal, and corporate bonds, rather than just Government of Canada bonds. It will now be tracking the Scotia Capital Short Term Bond Index.

XSP (S&P 500 tracker) and XIN (MSCI EAFE International Index tracker) will now be unaffected by exchange fluctuations. I assume this was done because of what happened in the last couple years, where Canadian investors’ in the US indexes were hurt by the falling US dollar in relation to the Canadian dollar (and every other currency for that matter).

We will know on November 15 the outcome of the vote by unitholders on the proposed changes. More detailed information can be found in the information circular.

Selling ETFs to buy index funds a bad idea

A friend recently asked me:

I’m just about to switch my ETF‘s to mutual index funds so I can contribute monthly without the transaction fees associated with ETF’s. I found a few funds from Altamira that have MER fees of 0.54. That seems pretty good to me…not quite as good as the 0.17% that you get for the iShares S&P TSX 60 ETF’s, but I think the ability to automatically contribute monthly makes up for the additional 0.36% in MER fees.

They wanted my opinion on this before they went ahead and did it. My reply was:

I wouldn’t switch if I were you because you’ll pay commission on the sale. If you are already invested in an ETF I would just hold it and let it grow. . . Definitely if you want to contribute monthly you should put your money into a mutual fund. Obviously no one would recommend buying ETFs monthly with the kind of monthly amounts you’re probably putting in, so really you have no choice. Just don’t sell the ETFs you already own.

The only reason I could see for you wanting to sell your ETF is if the mutual funds you are interested in required some sort of initial minimum. That would have surprised me though, because all of TD‘s funds for example, only require a minimum RSP investment of $100, and minimum subsequent investment of $100.

Basically if you are putting in small amounts per month, use mutual funds, that’s what they are for, if you have large amounts, get stocks or ETF indexes. When the amounts in mutual funds are large enough, it might make sense to transfer them into an ETF. But it’s up to the individual, especially if the difference in MER is so small, you might as well just leave it in mutual funds.

The MER on those mutual funds are really low which is great, so I would say buy them every month, but just don’t sell the ETFs you already own.

ETFs, the Inflation Fighter

The article, ETFs, the Inflation Fighter, talks about how sectors such as energy, utilities, and health care can help your portfolio during periods of high inflation. Historically, these sectors have done well during these periods. Sectors which are worse off during periods of “inflation acceleration” are consumer-discretionary, financial, industrial, and information-technology. My own advisor has recommended I overweight my portfolio in the energy markets (which does well during periods of high inflation and rising interest rates), especially since the S&P TSX indexes are heavily weighted in the financial sector (which does poorly during periods of high inflation and rising interest rates).

I have no idea why the title was “ETFs, the inflation fighter.” ETFs are just one way of investing in the stock market, and clearly not ALL ETFs are inflation fighters. Well, Ghosh works for Standard & Poor, so that might explain the bias towards an ETF rather than a managed mutual fund or individual stocks.