Exchange-Traded Funds (ETFs) are great products for investors only if: (1) they have rock-bottom fees, which means that investors keep what they don’t pay and (2) they have low turnover, which allows investors to create portfolios that are highly tax efficient. While they can nominally be called “ETF-based”, two new products fail to sport either of these advantages.
Jon Chevreau recently reported that AIM Trimark has launched ETF-based “target date” portfolios, which holds some fundamental index ETFs. A commenter posted the link to the Retirement Payout Portfolio prospectus and noted that the MER is likely to be around 2%. In addition, investors in these funds have to pay a sales load or opt for a deferred sales charge. It’s true that these funds are slightly cheaper than actively managed mutual funds that charge a MER of 2.5%. But, 2% is still too rich to pay for a smidgen of ETFs and a large dollop of mutual funds when an investor can construct a similar portfolio for 0.25% or less.
Investors can make their portfolios conservative over time simply by channelling new savings into the fixed income area. The AIM Trimark Portfolios incur unnecessary turnover by rebalancing their existing portfolio every year.
The other new “wolf in sheep’s clothing” is JovFunds tactical allocation portfolios constructed solely out of ETFs and charging a breathtaking MER of 2.25% (including a 1.25% trailer). And “tactical” is an euphemism for market timing, which even when it works (it hardly ever does), incurs devastating turnover.
Tom Bradley puts it best when he observes that “the marketing imperative of the wealth management industry is turning an effective and valuable investment product into something that makes no sense for the client”. On Bay Street, when the interest of investors clashes with the bottom line, the bottom line always wins. Why should ETFs be any different?