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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss the big trends in the exchange traded funds of space with Andres Rincon from TD Securities. We are going to take you to the results of the latest TD Direct Investing Index which measures investor sentiment. And in today's WebBroker education segment, we are going to show you how you can use fractional shares on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got green on the screen on both sides of the border. Let's start here at home with the TSX Composite Index.
Pretty decent gain of 280 points, we are up more, about 1 1/4%. We are seeing a bounce back in the price of crude. Gold is holding in. Some other metals like copper or making big gains, it's lifting a few boats. Among notable movers include Baytex energy. Could've chosen any big energy player today, putting points on the table.
Baytex is up more than 3%.
Kinross Gold, even though Gold is holding its own, some of the gold planes are lagging today. Some other mining stocks leaning towards copper making big gains.
Kinross is down about 1%. South of the border, why so much going on the screen?
It was a big week for US data. The market got rocked by the last US jobs report, thinking as the US headed for a recession?
Inflation coming in this week as expected, retail sales came in a lot stronger-than-expected, seems to be easing those fears about a recession and maybe that soft landing does appear. The S&P 500 is up 75 points, pretty big gain, 1 1/3%.
The NASDAQ is up a full 2%.
Walmart is up at 6 1/2%. We'll tell you more later. And that is your market update.
It has been an interesting summer in the markets, a sector rotation and a brief but dramatic selloff.
So what has this meant for fund flows in the ETF space to mark 20 as I discussed is Andres Rincon, managing Dir. and head of ETF sales on Saturday at TD Securities.
>> Thank you for having me.
>> It's been an interesting summer. You are out with your half your report as well about what's happening in ETF versus mutual fund land.
>> What we can clearly see see is a trend where ETF's are dominating and continue to be the driving force inflows in Canada and the US. To your comment earlier, they are very much in a risk on environment which is interesting given the volatility we are seeing as of late. To give you some perspective, in ETF land, we have seen about $33 billion in inflows this year.
Mutual flows have out flowed $8 billion this year. This is a trend we have seen since COVID. In Canada, COVID was a turning point. In the US, that turning point happened many years before. But we don't really see a way back were mutual funds, actively and consistently bringing more inflows than ETFs.
What's really interesting is the mix.
You are seeing inflows and fixed income across both vehicles, mutual funds and ETFs.
But an equity land, it is all ETFs. Mutual funds are seeing most of their inflows or outflows, really, in equity ETFs and really the big chunk of it is balanced ETFs.
We believe a big part of that is interest-rate. If you have interest rates high, people want to be in yielding products instead of balanced portfolios.
Now with rates going the other way, we are seeing a bit of a shift back into mutual funds on the balanced side but for now, mutual funds are seeing a lot of outflows in the balanced side, in the equity side, while both vehicles are seeing a lot of inflows, in the case of ETF, across all products, but also very strong in fixed income side.
Was also interesting to see is that ETFs, the ETF side is a little bit lagging when it comes to fixed income compared to mutual funds and there still a lot more money going into mutual funds when it comes to fixed income but as we have seen in the trend over the last recent years, ETFs are starting to dominate.
>> You mentioned balanced funds there. As I was going through your report, it seemed like people were not as interested in balanced funds as they were, rather just getting into fixed income or equity themselves.
>> Many of these same investors are switching out of the mutual balanced fund into the balanced fund on the ETF side.
What we call the asset allocation ETFs are very popular here in Canada, traded very heavily by retail and they are very popular. But you're right, a lot of investors are choosing to pick their own tools, combining the equity ETF with the fixed income ETF.
>> Fascinating stuff. Covered call ETFs, we have talked about them with you before on the show.
You say that space is going to heat up in terms of competition.
>> Not just covered calls.
If we step back, we have a number, we have 40 issuers here in Canada which is a significant number but we have seen a slowdown in new entries from Canada into the Canadian market. Now we are seeing a couple of interesting new entrants from the US. In the US has many large issuers that are not necessarily in Canada today.
We have some large was already here but many of the US issuers are not here.
Most recently we had filings from two very large asset managers in the US that are coming into Canada, they have already filed. One of them is J.P. Morgan asset management which is the largest acting manager in the US, and you also have capital group, a very big equity and fixed income player in the US too.
Most notably, in the case of J.P. Morgan, they are coming in with two of their most popular products in the US. The two largest cover call funds in the world are managed by JP Morgan. These two funds are basically giving you exposure to the broad market, be at the S&P 500 or the NASDAQ, in an active portfolio.
These funds are billions of dollars in the US and their being brought here to Canada and so it's very interesting.
What we are seeing now as many of the other players entering the marketing covered call. You have Fidelity who just file which they never had one, Invesco just launched today, they launched to income advantage ETFs which are basically cover call ETFs and they are the first in Canada that use ELN for their yield from a covered call perspective. Those are equity linked notes.
>> Are these a new generation of covered calls?
>> Yes.
In the US they are a little bit more common.
It's a different structure and it favours the US market which is why they are used a lot more in the US. Now they are bringing them here to Canada. It's exciting and a lot of issuers are bringing these products to Canada.
>> Maybe some investors watching the show are going to start looking at these products and doing some research.
With the risks be?
>> People have to remember that when you have a covered call fund, it's still a basket of stocks so there is still downside exposure.
They do provide some yield back to the investors that can buffer some of your downside exposure but at the end of the day, you're still having a basket of securities that will house volatility so it's important to understand that. It's also important to understand that you are giving up upside. There is an opportunity cost when you are selling calls, generating yield. The investor is making an active decision to move away from growth into yield, because they are giving away that growth, you are giving up that opportunity cost.
The opportunity cost is there. So that's very important to understand when you have ETFs or are investing in that space.
>> Fascinating stuff on that space.
Regular viewers of this program will know that Andres also has its own show called Buyside Views where he interviews prominent voices in the finance industry.
In his most recent episode, he was joined by Tim Wiggan, group head of wealth management and in syringe at TD Bank Group.
>> First off is demographic. I have always been fascinated in studying demographics and the impact it has on capital markets generally so we obviously have an aging demographic and that's creating all sorts of factors and themes in the business.
One of the major ones is the move from accumulation to decumulation. I like to think of that as converting your assets into income. You stop working and you are basically using your savings and investment dollars to create an income stream for you. Demographics as well as part to play with the younger demographic.
They might have a different set of principles as it relates to the financial institution that they choose to deal with.
They may not want to deal with the bank that mom and dad have so that's a major factor.
>> Interesting points there on how demographics can change the investment landscape. They also discussed how high interest rates have impacted the wealth business.
>> High interest rates can affect things like investment allocation versus savings allocation, so with a very high level of interest, it might dissuade someone, I think to their detriment, but it might dissuade someone from starting the investment journey relative to just having savings which may not be as efficient from a long-term return perspective and a tax perspective but is obviously part of the package.
>> Lots of interesting stuff there Andres and those were just too little threads of a really fascinating interview that I had a chance to check out. What else did you discuss can mark >> The first thing that stood out is how interconnected all the businesses are that Tim works on and it's really important to leverage all of the businesses to service the end client and the end clients can be anyone from retail to family offices and institutional clients in his world so it's very interesting how all of these businesses are interconnected. He also talked about insurance which is a very interesting area right now with all of the natural disasters happening in different areas.
That was fascinating for me to listen to.
And also the growth of wealth, how it's really being diversified globally and how it's changing quite rapidly.
So Tim and I go a long way. We both worked in trading for quite some time.
>> He has a history at TD Securities?
>> Yes.
He worked one row away from me for many years. He was an equity sales a long time ago and he did many roles in banking and capital markets.
He has a wealth of experience and I do encourage obviously your DI audience to log into the TD Securities website, listen to the video and they can also listen to it on spot if I and Apple podcasts. It's really fascinating about the growth of the wealth industry.
>> Look for Buyside Views with Andres.
Restart the program, fascinating stuff. We are going to get your questions about ETFs for Andres Rincon in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We had a subdued month for home sales here in Canada. New numbers from the Canadian Real Estate Association showing the number of homes changing hands fell in July 0.7%, that's the month over month figure, that was led by weakness in what is Columbia, Québec and Ontario.
TD economics taking a look at the numbers notes that clients came even as borrowing costs moved lower. That said, TD economics will expect a stronger showing for Canada's housing market in the second half of the year.
Got shares of Walmart in the spotlight today. The retail giant raising its full-year sales forecast after beating expectations in its most recent quarter.
Walmart says there was strong demand for fresh food and personal care products during the quarter.
We watch Walmart because it's a retail behemoth. If the consumer still feeling good about making purchases there, maybe they are still in alright shape south of the border. And here at home as well.
Walmart up 6.5%. Also got tech giant Cisco saying it will cut 7% of its global workforce as part of a restructuring plan.
The news comes as Cisco reports a 10% drop in sales in the quarter, compared to the same period last year. And sales for the fiscal year, they booked their first decline since 2020. He put all that together, perhaps news of the cuts and cost discipline, Cisco Systems is up more than 7% at this hour. Quick check in on the markets. We have a nice bit of green on the screen on both sides of the border.
The TSX Composite Index is up 1.25%.
South of the border, the consumer, despite the high cost of living in high borrowing cost seems to be hanging in alright. A retail sales came in stronger than expected for the last month south of the border. The S&P 500 up almost 1.5%.
We are back with Andres Rincon, taking your questions about exchange traded funds. First one here for you. What are the risks and the signs to watch for when investing for long-term incoming covered call enhanced yield Index ETF such as BANK or UMAX?
>> I want to address these two specifically. We touched on some risks of covered calls. It's important to remember that covered calls, the higher the volatility, the higher the yield. The investors basically investing in volatility.
I think it's important to emphasize from this question, back to the opportunity cost, and we have seen an evolution in the covered call product here in Canada from the first generation to what I will call now the second-generation of covered calls and I alluded a little bit to this in the discussion about J.P. Morgan because we saw earlier, most original covered calls were sector base. They were smaller portfolios and what these funds did was they had single names with a higher volatility Index. But that also meant that they had to override only a small portion, 1/4 to half of the portfolio. Most covered call ETFs for that first generation were there. That meant that the upside of these equity is, these ETFs, were limited to maximum 50% of the portfolio.
There was a cap of 50%.
The new ones are sightly different. They are more index based so they give you exposure to a much broader set of securities, call it the S&P 500 or the NASDAQ or something along those lines but because it's very hard to write on 500 names, they do index options. Because index options generally have lower volatility, they have to be a little bit more aggressive in how they overwrite.
Why that's important is because in the newer generation, it tends to have a higher percentage of overriding of the fun. They give you less upside than the older generation.
It's important to understand that when you're getting into these products what you want from your product, how much growth or upside you want and need, yield, that's why there is a huge amount of products in the environment, but you are giving up a lot more upside in the new products than before in exchange for higher yield, obviously.
>> Important stuff to keep in mind for those products. Next audience question. If you are says, I have read that buffer ETFs can help with handling volatility. They want to know, how to buffer ETFs work?
>> For sure. These ETFs are fairly simple.
The name actually, buffer, they buffer the performance, especially the downside performance of these ETFs. How they do that is fairly simple. They buy puts, they buy insurance on the portfolio. You are long, generally speaking, a broad basket of securities, let's say the S&P 500, and they say I will buy insurance on your behalf for this basket of securities. It can be 100% protection, it can be limited protection. Most buffers here in Canada have limited protection but there is a range. They say, okay, I need to pay for this protection. How I do that? This all calls. They give away some of your upside.
They say, I will give away some of your upside in exchange provide you with some downside protection. When you sell calls, you sell volatility and when you buy protection, you are hedging your portfolio. What you are doing there once again is giving up some upside for some downside buffer which actually lowers the volatility of your portfolio so that in theory this position works relatively well with other beta positions because it has a different correlation and trajectory.
>> Is there an environment where the strategy does not work well? Thinking about the market rises that we have seen and the volatility, how does this fit into the mix?
>> Into environments I would say.
If you have a very strong bull market, you are just capping your upside. Same as covered calls, at the end of the day. You are making an active decision to protect yourself.
Obviously in full bull markets it's a bit tougher. But also some of these, remember, have limited downside. So you will have 10% downside protection, a buffer, not full downside.
If you had a full recession or bear market, they will give you only limited protection. At have they been around for a long time to mark >> They've been around quite a bit in the US. They are very popular in the US. There are a couple of different issuers in the US that have made these products quite popular and in the US, the realm of products has grown next financially. Now we have two issuers here in Canada. We have BMO and first trust to have these products here in Canada. There just starting out.
First trust has been here for a couple of years now, be more recently, and they have close to $200 million between the two but they are growing quite rapidly.
>> Interesting space for our audience to research if they are interested.
Another question. If you is asking, what US funds do you recommend for small-cap?
On the popper we cannot make regulations but I understand where this question is coming from because when I talk about that rotation earlier in the show, for a while, some small-cap, the Russell 2000 Index, there has been a lot of attention.
>> A lot of the small caps have become popular, especially the small caps with higher quality, I would say. Going back to the original question, what's popular, I'm just gonna name some tickers, the biggest one in the USA's IJ are from iShares which is small-cap S&P index, about $82 billion, which is fairly sizable for a small-cap ETF. It's very cheap. If you want cheap exposure to small caps in the US, that's a very easy way to do it. You have a IWM, one of the most actively traded small-cap ETFs in the US, it's about $63 billion, but you have some cheap ones in that space, three and five basis points.
There is COW and CALF. The small-cap version of cows and they are cash cows… >> The small-cap version of cow, I get it.
>> They are cash cow and baby cash cow, basically.
They are very popular in the US because they also have a quality screen on them to ensure that you get the best of the best of the small caps.*There is just of the small-cap tray doesn't work out or we see a pullback like we saw the Russell 2000 in the last little while?
They are falling in line with equities.
>> Exactly. ETFs are a rapper of securities and they are just wrapping small caps.
>> Another question from the audience. Can you suggest any Canadian ETF that focuses on US small and mid-caps?
They don't want to be in US dollars. We have anything in this country?
>> There is no small-cap ETF that focuses on Canada because we don't have a human's market like in the US. There are some that have Canadian names but most of the Canadian listed ETFs focus on small and mid-caps are US focus for the most part.
One of the biggest ones in Canada is actually managed by TD asset management, teak USM, that's US small and mid, $344 million, it's about 40 basis points.
A bit more on the rich side compared to some of their competitors but it's very popular here in Canada, one of the better traded ones. You have XM the sea and… From BMO and iShares, about $300 million each but much cheaper at 15 basis points. They have slightly different exposure but at the end of the day, they give you exposure to small and mid.
>> For anyone who is sort of getting in on the conversation about ETFs right now, we talk about those basis points and those points, we are really talking about the management expense ratios, how much you're paying for that.
>> That's right, I'm talking about the cost of owning this.
>> Interesting stuff indeed.
As always, make sure you do your own research before making any investment decisions at home.
We are going to get back to your questions for Andres Rincon on an extreme traded funds in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, look at our educational segment of the day.
You can now invest in fractional shares on Webbroker and TD Direct Investing has this explainer on how it works.
>> To buy or sell partial shares, also known as fractional shares, and web broker, open a trade ticket and select your account. You can trade partial shares in Canadian and US dollars using a cash account, margin account, TFSA, RRSP, RIF, RESP or RESP. Next, enter the name of the soccer ETF they want to trade and to get the quote for the current price. Partial training is available on many stocks and ETFs listed on the Canadian and US exchanges.
You will find the complete list available for personal trading here. If partial shares are available for the soccer ETF you entered, the fractional icon will be green.
You can only buy and sell partial shares as a market order, meaning your trade will execute at the best available price. If you switch to another order type, such as limit, stock market or supplement, the partial quantity will round to a full share quantity. You can place a buy order in one of two ways. Number one, enter the dollar amount you want to invest.
The calculator will estimate how many shares you can buy, including fractions up to five decimal places. Or number two, enter a whole or partial quantity and the cost later will estimate the dollar amount.
Cell orders are always quantity base. The dollar amount will be estimated.
You can enter quantity based orders at any time, but the dollar-based order to get is only available during market hours.
For all partial orders, the good till date will be set to day.
Click preview order to review the details of your trade ticket. When you say less than a share, you will pay a flat fee of $1.99. Otherwise, standard commissions apply. Orders placed as soon as you click agree and send and executed in real time during market hours.
To check the status of your order, under the trading tab, select order status.
Here, you will find the details of your partial shares order. That's how you trade partial shares in web broker.
For more information on partial shares, check out the homepage for educational resources on how trading partial shares can work for you.
Have more questions? Browse our on-demand videos, live webinars and interactive master classes in the learning centre.
>> Before we get back to your questions about ETFs for Andres Rincon, a reminder of hiking and had for this. Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Andres Rincon, take your questions about exchange traded funds. Next one for you here.
Japan has been an interesting place. Any good ETFs to give exposure to Japan?
>> In the same way that we have small and mid ETFs here in Canada, you have ETFs here in Canada that gives you exposure to Japan. There are different indices that they cover.
It depends on the size of the market that they want to cover.
You have Japan in JAPN.
ME. And you have fairly long-standing ones in ZJPN.
It covers market of the hundred and $50 million in assets under management for that one. What's really interesting is not just in Canada but globally, one of the issuers that really focuses on countries is Franklin. Franklin has an amazing lineup of country focused ETFs, by far the cheapest on the street. There ETF here in Canada, FL GA, is 10 basis points, so much cheaper than the other ones. It's a smaller fund, it's relatively newer, but this fund you can also find in the US and Canada. They are considerably cheaper than all the other competition.
>> Given the interest in Japan after decades and decades of not a lot of interest, have you had many conversations about it, have you heard about any interest in Japan?
>> It ebbs and flows, it comes and goes.
Some people really care about it right now.
It comes and goes, I would say.
>> Limit the currency implications? When you are talking about international equities getting exposure to ETFs, I imagine there are a lot of products.
>> They have JAPN and JAPN.
ME. There is a hedged and an unhedged version. In Canada you can get exposure to Japan on a hedged or unhedged perspective depending on how you feel about the currency. Depending on the volatility of the currency, it can be a massive difference in performance.
>> Interesting stuff indeed. Do you expect Ethereum spot ETFs to eventually be as popular as McWin ETFs?
>> The short answer is unlikely.
If you look at ether ETFs in Canada, it's about $4 billion. That's really only 18% of what we see in a UM versus bitcoin ETFs here in Canada. If you use an analogy, here in Canada, you would say that you'd probably seasonally similar in the US.
Today, it's about 11% in the US of ether versus bitcoin. It's already pretty good given that Easter ETFs just launched recently. But we do see long term it's more likely to go towards the 20% case which is what we see.
>> If we are talking about Ethereum or bitcoin ETFs, we have to talk about the risks.
>> Every time we talk about crypto current sees, there are a lot of risks and when it comes to the ETF specifically, there are obviously market moves, price volatility and that risk there and specifically when it comes to crypto current is, you have custody risk which is a big significant risk for digital currencies.
>> The fact that the issuer actually holds the crypto?
>> Is not the issuers, they'll have custodians and the custodians are fairly large, they are very well-regulated so they are as safe as they usually can be for this industry but at the end of the day, there is always a risk that there is theft or other things that happen so there is the risk of the custodian losing the asset somehow, even though they are in a cold wallet, there is always a risk.
>> Interesting stuff on that space.
Another obvious question. Can you speak to CLB? That's the BMO low volatility equity ETF.
>> Let me talk a little bit about low volatility as a whole.
You have low variance ETFs and low beta ETFs and you have a whole range of products here in Canada that can give you exposure to low volatility. Some of them are really focused on minimum variance.
A slightly lower volatility version of the S&P 500. Many have other products like the Invesco one and the BMO one that provide you a lot lower beta or a lot lower volatility than your traditional index exposure. It really depends with the investor wants.
If the investor wants to plug-in ETF into an existing portfolio that already has beta exposure, exposure to the market, then you're better off using an ETF that really provides you a differentiated return, something like Z LB from BMO that gives you a lot of differentiated return because number one it is beta driven, it's not driven by lower volatility like many of the other ones, but also its performance and correlation is quite different compared to the market, let's say. Some of these like an iShares product, they have minimum variance products and their product moves closely in line with the broad market so that's the better product to use as beta because it obviously would dominate but if you put that on top of an existing beta portfolio, it would not do much. It really depends with the investor wants, if they want to put it into an existing portfolio or if they want to have it as their beta position.
>> You've got to know your strategy and what you want and you need to know what you are buying as well. Things that question. Next question we got here coming in.
What do you think of the bank equal weight ETF ZEB? Does it have a lot of growth in dividends for the long term, 10 years? How does the space work?
>> I don't have a magic ball to know what the dividend projections are. As you mentioned earlier, these ETFs are just wrappers of the underlying securities.
In this case, the Canadian banks. So I really can't forecast what the dividends are going to do for the banks but historically speaking, we have seen about like a five year growth of about 10% so you can take that in C, I've seen that in the past, perhaps it is something similar or different, I really don't know, but at the end of the day, the banks have generally been very good growers of dividends and it ZEB has also been a decent grower of dividends.
>> Interesting stuff there. We are going to get back to your questions for Andres Rincon onyx team traded funds in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions. deum.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
The TD Direct Investing Index of the month of July has been released and self-directed investor sentiment turned bullish.
Here are the details. Let's start with the overall TD Direct Investing Index, the DII, that measure sentiment in a range from -100 for very bearish to +104 very bullish.
DII sentiment landed at +8 for July, that's a 13 point gain over the previous month. The summertime rally kept its momentum going even as leadership slipped from those mega-cap tech tightens to lower-priced small-cap and value stocks that slipped under the radar in 2024.
When we compare sentiment to July of last year, a modest gain when sentiment was at +1.
Taking a look at the components that make up the DII, we saw improvement in the flight to safety measure which rose 11 points to +7, that means more investors traded in higher risk items such as equities. A negative value means risk off or more flight into safer, less risky investments.
However, fewer self-directed investors but equities at the top of the market.
The proxy for chasing stocks at 52-week highs was only plus one in July, down seven points month over month. Investors rotated out of highflying technology and communication stocks into value-oriented sectors such as financials and basic materials that offered more attractive valuations.
A few key points that stood out. Financial services ranked as most heavily traded sector in July. Secondly, traditionalists, those born between 1928 and 1945, with the most optimistic.
Financials, which previously sat near the bottom in June, bounced back to be the top trade sector in July with a sentiment score of +5, that is up six points month over month.
Meanwhile, the technology sector slipped to the near bottom, something 16 points to -1 in July has those large Tech stocks sold off during the month.
Among the heavily sold stocks and technology were Shopify and chip giants Nvidia and AMD as enthusiasm for AI related stocks waned.
Meanwhile, sentiment for traditionalists climb seven points month over month 2+2 in July. Not surprisingly, the oldest generation favour dividend paying stocks such as PMO, TD and BCE, which were among the top about stocks last month.
And that to her TD Direct Investing Index highlights for July 2024.
[music] We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing. This is the heat map function, giving you a view of the market movers. We are screening the TSX 60 by price and volume. We have the TSX Composite Index in positive territory right now. What's happening under the hood? We've got the financials, and one of them are making oversized gains but this is a heavyweight sector when it comes to that topline TSX number. If the big banks are all up around 1%, and then some, in the Lycos as well, that adds a lot of points to the table. A bit more of a mixed picture in the energy space but you have names like Cenovus and CNQ making some solid gains. A bit mixed in the material space to go. You got some copper names, I want to get you a fresh copper quote here , we had copper up to the tune of almost 3% so some plays they are that are closely related to copper making some big gains but Kinross, will play, is on a little more than 1% today.
South of the border, that whipsaw action we saw last week and the return we have seen to almost pre-selloff levels in the last several sessions has been interesting and it's really been about the economy south of the border.
Inflation seems to be back down to where the markets want to see it. The focus now is the labour market. The economy is cooling slowly in the US. The jobs report jolted the markets but today we got our retail sales report coming in much stronger than affected so it seems the consumer is hanging in, recession fears are starting to ease and you're starting to see big gains across the border.
Walmart is earning its own way through its earnings appropriate a lot of big tech names, Nvidia and Intel in rally mode today.
We are back now with Andres Rincon from TD Securities talking ETFs. Another question for you here. Someone wants to know, how do you compare different ETFs the track the same index? What makes one better than the other?
>> That's a very good question. There are over 5000 ETFs in North America and it can be a little overwhelming when you're looking at let's say ETFs that track the S&P 500. There are so many ETFs already that track the S&P 500. That's a very good question.
There are different ways you can look at it, whether you are a long-term investor or a traitor. Because what you care about is different.
I will give you an example. If you are a long-term investor, you care about long-term cost and holding these ETFs.
That's mostly management fees. You have a cost to get in and out, the round-trip cost of the ETF, which is taken by the spread, there is a spread to get in and out, but if you are only getting in or out once or twice a year, you're a longtime holder, you care about the management fee, the MER, the total ownership cost of that ETF. That's one very key metric when you are comparing many ETFs.
A clear example that is the biggest ETF in the world is the SPY. That is the most actively traded ETF in the world but it's actually more expensive than others which are equally as big and those are better positioned for long-term investors because they are much cheaper and the round-trip cost is much lower. SPY, on the other hand, is better position for active traders because it's a lot more liquid on the board and raise a lot more by institutions. That's one area you look at.
Also look at tracking error.
If you are looking for an index ETF specifically which was the question, you have to look at tracking error.
Are they following the index they are intending to follow? You're going to have some ETF that actually, they move a little bit away from their index for a variety of reasons.
State Street, for example, the SPY, it's a slightly different structure than others.
Because of that, they cannot do a couple of things within the fund. They cannot lead their securities, for example. They do not earn revenue from that. A couple of other factors because of that, they actually underperform a couple of others long term.
That just to give you an example.
Tracking index is very important for a lot of these ETFs and also liquidity of spread. How white is spread?
If the cost to get in and out is quite large, there might be better alternatives.
The other one is liquidity. If I am trading in size, the more these ETFs trade on the board for mom-and-pop that are trying to buy an ETF, the better and easier it is to find liquidity and get in and out of that position.
>> Fascinating stuff there to keep in mind. More than I thought you would need to keep in mind in that space.
Next question. I've noticed that new ETFs often seem to cannibalize older products offered by the same companies. Can you discuss that?
>> I think we can go back to the original discussion when we started our conversation today. As part of the natural evolution of the fund industry.
If you are a mutual fund provided today, you are seeing the industry as a whole, the industry as a whole is consistently seeing outflows. What you want to do?
You're going to go into the structure that is working, which is the ETF structure.
Especially the younger generation here in Canada and the US, they are investing in ETFs. They have to see it and they do see it and so they are slowly and strategically moving into the ETF space.
They understand that often, the cost of ETF's are lower than the mutual fund space so they are being strategic about it but they are slowly moving into that space which is why most mutual fund providers in Canada have exposure to ETFs.
We are seeing that across industries.
The automobile industry. How many cars are not coming out with EVs in the traditionally gas world, right? Why are they doing that? Because they are seeing that the market is growing at a slower pace but it is growing and they see that it's going to be the future.
So all of these many factors are going and saying, it's going to cannibalize some of my gas cars but I know I need to be in this market with what we are seeing in the ETF space.
>> Good analogy on that. We are out of time for questions. Before let you go, we had a conversation off the top about trends in the ETF space. What are you watching going forward?
>> What I am watching, what's interesting to us, is the evolution and the fixed income market. As I mentioned earlier, the ETF spaces a little bit behind the mutual fund space when it comes to fixed income specifically. What we are seeing a lot now in ETF world is the growth of active, Canada is a leader in active management.
We are seeing a lot more of the traditional mutual fund managers coming into the ETF space with actively managed strategies and we can tell you because we have seen this in the US, investors love actively manage strategies when it comes to fixed income. We are seeing growth in ETFs and we are seeing how, back to that question, ETF's are going to cannibalize some of the mutual funds. That's what I'm watching.
>> Always fascinating conversation. Great to have you. Thanks for joining us.
>> Thanks for having me.
>> Our thanks to Andres Rincon, managing Dir. and head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your question today, we are going to aim to get them into future shows. We will be back tomorrow with an update on the markets, some highlights from our best interviews of the week and then on Monday show, in the wake of that spike volatility we saw a recently, we will be joined by Emin Baghramyan, VP and Dir. for quantitative equity at TD Asset Management, he will be our guest take your questions about low volatility investing.
A reminder that you can get a head start on questions for that show or any show, just email moneytalklive@td.com. That's all the time we have for today show.
Thanks for watching. We will see you tomorrow.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss the big trends in the exchange traded funds of space with Andres Rincon from TD Securities. We are going to take you to the results of the latest TD Direct Investing Index which measures investor sentiment. And in today's WebBroker education segment, we are going to show you how you can use fractional shares on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got green on the screen on both sides of the border. Let's start here at home with the TSX Composite Index.
Pretty decent gain of 280 points, we are up more, about 1 1/4%. We are seeing a bounce back in the price of crude. Gold is holding in. Some other metals like copper or making big gains, it's lifting a few boats. Among notable movers include Baytex energy. Could've chosen any big energy player today, putting points on the table.
Baytex is up more than 3%.
Kinross Gold, even though Gold is holding its own, some of the gold planes are lagging today. Some other mining stocks leaning towards copper making big gains.
Kinross is down about 1%. South of the border, why so much going on the screen?
It was a big week for US data. The market got rocked by the last US jobs report, thinking as the US headed for a recession?
Inflation coming in this week as expected, retail sales came in a lot stronger-than-expected, seems to be easing those fears about a recession and maybe that soft landing does appear. The S&P 500 is up 75 points, pretty big gain, 1 1/3%.
The NASDAQ is up a full 2%.
Walmart is up at 6 1/2%. We'll tell you more later. And that is your market update.
It has been an interesting summer in the markets, a sector rotation and a brief but dramatic selloff.
So what has this meant for fund flows in the ETF space to mark 20 as I discussed is Andres Rincon, managing Dir. and head of ETF sales on Saturday at TD Securities.
>> Thank you for having me.
>> It's been an interesting summer. You are out with your half your report as well about what's happening in ETF versus mutual fund land.
>> What we can clearly see see is a trend where ETF's are dominating and continue to be the driving force inflows in Canada and the US. To your comment earlier, they are very much in a risk on environment which is interesting given the volatility we are seeing as of late. To give you some perspective, in ETF land, we have seen about $33 billion in inflows this year.
Mutual flows have out flowed $8 billion this year. This is a trend we have seen since COVID. In Canada, COVID was a turning point. In the US, that turning point happened many years before. But we don't really see a way back were mutual funds, actively and consistently bringing more inflows than ETFs.
What's really interesting is the mix.
You are seeing inflows and fixed income across both vehicles, mutual funds and ETFs.
But an equity land, it is all ETFs. Mutual funds are seeing most of their inflows or outflows, really, in equity ETFs and really the big chunk of it is balanced ETFs.
We believe a big part of that is interest-rate. If you have interest rates high, people want to be in yielding products instead of balanced portfolios.
Now with rates going the other way, we are seeing a bit of a shift back into mutual funds on the balanced side but for now, mutual funds are seeing a lot of outflows in the balanced side, in the equity side, while both vehicles are seeing a lot of inflows, in the case of ETF, across all products, but also very strong in fixed income side.
Was also interesting to see is that ETFs, the ETF side is a little bit lagging when it comes to fixed income compared to mutual funds and there still a lot more money going into mutual funds when it comes to fixed income but as we have seen in the trend over the last recent years, ETFs are starting to dominate.
>> You mentioned balanced funds there. As I was going through your report, it seemed like people were not as interested in balanced funds as they were, rather just getting into fixed income or equity themselves.
>> Many of these same investors are switching out of the mutual balanced fund into the balanced fund on the ETF side.
What we call the asset allocation ETFs are very popular here in Canada, traded very heavily by retail and they are very popular. But you're right, a lot of investors are choosing to pick their own tools, combining the equity ETF with the fixed income ETF.
>> Fascinating stuff. Covered call ETFs, we have talked about them with you before on the show.
You say that space is going to heat up in terms of competition.
>> Not just covered calls.
If we step back, we have a number, we have 40 issuers here in Canada which is a significant number but we have seen a slowdown in new entries from Canada into the Canadian market. Now we are seeing a couple of interesting new entrants from the US. In the US has many large issuers that are not necessarily in Canada today.
We have some large was already here but many of the US issuers are not here.
Most recently we had filings from two very large asset managers in the US that are coming into Canada, they have already filed. One of them is J.P. Morgan asset management which is the largest acting manager in the US, and you also have capital group, a very big equity and fixed income player in the US too.
Most notably, in the case of J.P. Morgan, they are coming in with two of their most popular products in the US. The two largest cover call funds in the world are managed by JP Morgan. These two funds are basically giving you exposure to the broad market, be at the S&P 500 or the NASDAQ, in an active portfolio.
These funds are billions of dollars in the US and their being brought here to Canada and so it's very interesting.
What we are seeing now as many of the other players entering the marketing covered call. You have Fidelity who just file which they never had one, Invesco just launched today, they launched to income advantage ETFs which are basically cover call ETFs and they are the first in Canada that use ELN for their yield from a covered call perspective. Those are equity linked notes.
>> Are these a new generation of covered calls?
>> Yes.
In the US they are a little bit more common.
It's a different structure and it favours the US market which is why they are used a lot more in the US. Now they are bringing them here to Canada. It's exciting and a lot of issuers are bringing these products to Canada.
>> Maybe some investors watching the show are going to start looking at these products and doing some research.
With the risks be?
>> People have to remember that when you have a covered call fund, it's still a basket of stocks so there is still downside exposure.
They do provide some yield back to the investors that can buffer some of your downside exposure but at the end of the day, you're still having a basket of securities that will house volatility so it's important to understand that. It's also important to understand that you are giving up upside. There is an opportunity cost when you are selling calls, generating yield. The investor is making an active decision to move away from growth into yield, because they are giving away that growth, you are giving up that opportunity cost.
The opportunity cost is there. So that's very important to understand when you have ETFs or are investing in that space.
>> Fascinating stuff on that space.
Regular viewers of this program will know that Andres also has its own show called Buyside Views where he interviews prominent voices in the finance industry.
In his most recent episode, he was joined by Tim Wiggan, group head of wealth management and in syringe at TD Bank Group.
>> First off is demographic. I have always been fascinated in studying demographics and the impact it has on capital markets generally so we obviously have an aging demographic and that's creating all sorts of factors and themes in the business.
One of the major ones is the move from accumulation to decumulation. I like to think of that as converting your assets into income. You stop working and you are basically using your savings and investment dollars to create an income stream for you. Demographics as well as part to play with the younger demographic.
They might have a different set of principles as it relates to the financial institution that they choose to deal with.
They may not want to deal with the bank that mom and dad have so that's a major factor.
>> Interesting points there on how demographics can change the investment landscape. They also discussed how high interest rates have impacted the wealth business.
>> High interest rates can affect things like investment allocation versus savings allocation, so with a very high level of interest, it might dissuade someone, I think to their detriment, but it might dissuade someone from starting the investment journey relative to just having savings which may not be as efficient from a long-term return perspective and a tax perspective but is obviously part of the package.
>> Lots of interesting stuff there Andres and those were just too little threads of a really fascinating interview that I had a chance to check out. What else did you discuss can mark >> The first thing that stood out is how interconnected all the businesses are that Tim works on and it's really important to leverage all of the businesses to service the end client and the end clients can be anyone from retail to family offices and institutional clients in his world so it's very interesting how all of these businesses are interconnected. He also talked about insurance which is a very interesting area right now with all of the natural disasters happening in different areas.
That was fascinating for me to listen to.
And also the growth of wealth, how it's really being diversified globally and how it's changing quite rapidly.
So Tim and I go a long way. We both worked in trading for quite some time.
>> He has a history at TD Securities?
>> Yes.
He worked one row away from me for many years. He was an equity sales a long time ago and he did many roles in banking and capital markets.
He has a wealth of experience and I do encourage obviously your DI audience to log into the TD Securities website, listen to the video and they can also listen to it on spot if I and Apple podcasts. It's really fascinating about the growth of the wealth industry.
>> Look for Buyside Views with Andres.
Restart the program, fascinating stuff. We are going to get your questions about ETFs for Andres Rincon in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We had a subdued month for home sales here in Canada. New numbers from the Canadian Real Estate Association showing the number of homes changing hands fell in July 0.7%, that's the month over month figure, that was led by weakness in what is Columbia, Québec and Ontario.
TD economics taking a look at the numbers notes that clients came even as borrowing costs moved lower. That said, TD economics will expect a stronger showing for Canada's housing market in the second half of the year.
Got shares of Walmart in the spotlight today. The retail giant raising its full-year sales forecast after beating expectations in its most recent quarter.
Walmart says there was strong demand for fresh food and personal care products during the quarter.
We watch Walmart because it's a retail behemoth. If the consumer still feeling good about making purchases there, maybe they are still in alright shape south of the border. And here at home as well.
Walmart up 6.5%. Also got tech giant Cisco saying it will cut 7% of its global workforce as part of a restructuring plan.
The news comes as Cisco reports a 10% drop in sales in the quarter, compared to the same period last year. And sales for the fiscal year, they booked their first decline since 2020. He put all that together, perhaps news of the cuts and cost discipline, Cisco Systems is up more than 7% at this hour. Quick check in on the markets. We have a nice bit of green on the screen on both sides of the border.
The TSX Composite Index is up 1.25%.
South of the border, the consumer, despite the high cost of living in high borrowing cost seems to be hanging in alright. A retail sales came in stronger than expected for the last month south of the border. The S&P 500 up almost 1.5%.
We are back with Andres Rincon, taking your questions about exchange traded funds. First one here for you. What are the risks and the signs to watch for when investing for long-term incoming covered call enhanced yield Index ETF such as BANK or UMAX?
>> I want to address these two specifically. We touched on some risks of covered calls. It's important to remember that covered calls, the higher the volatility, the higher the yield. The investors basically investing in volatility.
I think it's important to emphasize from this question, back to the opportunity cost, and we have seen an evolution in the covered call product here in Canada from the first generation to what I will call now the second-generation of covered calls and I alluded a little bit to this in the discussion about J.P. Morgan because we saw earlier, most original covered calls were sector base. They were smaller portfolios and what these funds did was they had single names with a higher volatility Index. But that also meant that they had to override only a small portion, 1/4 to half of the portfolio. Most covered call ETFs for that first generation were there. That meant that the upside of these equity is, these ETFs, were limited to maximum 50% of the portfolio.
There was a cap of 50%.
The new ones are sightly different. They are more index based so they give you exposure to a much broader set of securities, call it the S&P 500 or the NASDAQ or something along those lines but because it's very hard to write on 500 names, they do index options. Because index options generally have lower volatility, they have to be a little bit more aggressive in how they overwrite.
Why that's important is because in the newer generation, it tends to have a higher percentage of overriding of the fun. They give you less upside than the older generation.
It's important to understand that when you're getting into these products what you want from your product, how much growth or upside you want and need, yield, that's why there is a huge amount of products in the environment, but you are giving up a lot more upside in the new products than before in exchange for higher yield, obviously.
>> Important stuff to keep in mind for those products. Next audience question. If you are says, I have read that buffer ETFs can help with handling volatility. They want to know, how to buffer ETFs work?
>> For sure. These ETFs are fairly simple.
The name actually, buffer, they buffer the performance, especially the downside performance of these ETFs. How they do that is fairly simple. They buy puts, they buy insurance on the portfolio. You are long, generally speaking, a broad basket of securities, let's say the S&P 500, and they say I will buy insurance on your behalf for this basket of securities. It can be 100% protection, it can be limited protection. Most buffers here in Canada have limited protection but there is a range. They say, okay, I need to pay for this protection. How I do that? This all calls. They give away some of your upside.
They say, I will give away some of your upside in exchange provide you with some downside protection. When you sell calls, you sell volatility and when you buy protection, you are hedging your portfolio. What you are doing there once again is giving up some upside for some downside buffer which actually lowers the volatility of your portfolio so that in theory this position works relatively well with other beta positions because it has a different correlation and trajectory.
>> Is there an environment where the strategy does not work well? Thinking about the market rises that we have seen and the volatility, how does this fit into the mix?
>> Into environments I would say.
If you have a very strong bull market, you are just capping your upside. Same as covered calls, at the end of the day. You are making an active decision to protect yourself.
Obviously in full bull markets it's a bit tougher. But also some of these, remember, have limited downside. So you will have 10% downside protection, a buffer, not full downside.
If you had a full recession or bear market, they will give you only limited protection. At have they been around for a long time to mark >> They've been around quite a bit in the US. They are very popular in the US. There are a couple of different issuers in the US that have made these products quite popular and in the US, the realm of products has grown next financially. Now we have two issuers here in Canada. We have BMO and first trust to have these products here in Canada. There just starting out.
First trust has been here for a couple of years now, be more recently, and they have close to $200 million between the two but they are growing quite rapidly.
>> Interesting space for our audience to research if they are interested.
Another question. If you is asking, what US funds do you recommend for small-cap?
On the popper we cannot make regulations but I understand where this question is coming from because when I talk about that rotation earlier in the show, for a while, some small-cap, the Russell 2000 Index, there has been a lot of attention.
>> A lot of the small caps have become popular, especially the small caps with higher quality, I would say. Going back to the original question, what's popular, I'm just gonna name some tickers, the biggest one in the USA's IJ are from iShares which is small-cap S&P index, about $82 billion, which is fairly sizable for a small-cap ETF. It's very cheap. If you want cheap exposure to small caps in the US, that's a very easy way to do it. You have a IWM, one of the most actively traded small-cap ETFs in the US, it's about $63 billion, but you have some cheap ones in that space, three and five basis points.
There is COW and CALF. The small-cap version of cows and they are cash cows… >> The small-cap version of cow, I get it.
>> They are cash cow and baby cash cow, basically.
They are very popular in the US because they also have a quality screen on them to ensure that you get the best of the best of the small caps.*There is just of the small-cap tray doesn't work out or we see a pullback like we saw the Russell 2000 in the last little while?
They are falling in line with equities.
>> Exactly. ETFs are a rapper of securities and they are just wrapping small caps.
>> Another question from the audience. Can you suggest any Canadian ETF that focuses on US small and mid-caps?
They don't want to be in US dollars. We have anything in this country?
>> There is no small-cap ETF that focuses on Canada because we don't have a human's market like in the US. There are some that have Canadian names but most of the Canadian listed ETFs focus on small and mid-caps are US focus for the most part.
One of the biggest ones in Canada is actually managed by TD asset management, teak USM, that's US small and mid, $344 million, it's about 40 basis points.
A bit more on the rich side compared to some of their competitors but it's very popular here in Canada, one of the better traded ones. You have XM the sea and… From BMO and iShares, about $300 million each but much cheaper at 15 basis points. They have slightly different exposure but at the end of the day, they give you exposure to small and mid.
>> For anyone who is sort of getting in on the conversation about ETFs right now, we talk about those basis points and those points, we are really talking about the management expense ratios, how much you're paying for that.
>> That's right, I'm talking about the cost of owning this.
>> Interesting stuff indeed.
As always, make sure you do your own research before making any investment decisions at home.
We are going to get back to your questions for Andres Rincon on an extreme traded funds in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, look at our educational segment of the day.
You can now invest in fractional shares on Webbroker and TD Direct Investing has this explainer on how it works.
>> To buy or sell partial shares, also known as fractional shares, and web broker, open a trade ticket and select your account. You can trade partial shares in Canadian and US dollars using a cash account, margin account, TFSA, RRSP, RIF, RESP or RESP. Next, enter the name of the soccer ETF they want to trade and to get the quote for the current price. Partial training is available on many stocks and ETFs listed on the Canadian and US exchanges.
You will find the complete list available for personal trading here. If partial shares are available for the soccer ETF you entered, the fractional icon will be green.
You can only buy and sell partial shares as a market order, meaning your trade will execute at the best available price. If you switch to another order type, such as limit, stock market or supplement, the partial quantity will round to a full share quantity. You can place a buy order in one of two ways. Number one, enter the dollar amount you want to invest.
The calculator will estimate how many shares you can buy, including fractions up to five decimal places. Or number two, enter a whole or partial quantity and the cost later will estimate the dollar amount.
Cell orders are always quantity base. The dollar amount will be estimated.
You can enter quantity based orders at any time, but the dollar-based order to get is only available during market hours.
For all partial orders, the good till date will be set to day.
Click preview order to review the details of your trade ticket. When you say less than a share, you will pay a flat fee of $1.99. Otherwise, standard commissions apply. Orders placed as soon as you click agree and send and executed in real time during market hours.
To check the status of your order, under the trading tab, select order status.
Here, you will find the details of your partial shares order. That's how you trade partial shares in web broker.
For more information on partial shares, check out the homepage for educational resources on how trading partial shares can work for you.
Have more questions? Browse our on-demand videos, live webinars and interactive master classes in the learning centre.
>> Before we get back to your questions about ETFs for Andres Rincon, a reminder of hiking and had for this. Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Andres Rincon, take your questions about exchange traded funds. Next one for you here.
Japan has been an interesting place. Any good ETFs to give exposure to Japan?
>> In the same way that we have small and mid ETFs here in Canada, you have ETFs here in Canada that gives you exposure to Japan. There are different indices that they cover.
It depends on the size of the market that they want to cover.
You have Japan in JAPN.
ME. And you have fairly long-standing ones in ZJPN.
It covers market of the hundred and $50 million in assets under management for that one. What's really interesting is not just in Canada but globally, one of the issuers that really focuses on countries is Franklin. Franklin has an amazing lineup of country focused ETFs, by far the cheapest on the street. There ETF here in Canada, FL GA, is 10 basis points, so much cheaper than the other ones. It's a smaller fund, it's relatively newer, but this fund you can also find in the US and Canada. They are considerably cheaper than all the other competition.
>> Given the interest in Japan after decades and decades of not a lot of interest, have you had many conversations about it, have you heard about any interest in Japan?
>> It ebbs and flows, it comes and goes.
Some people really care about it right now.
It comes and goes, I would say.
>> Limit the currency implications? When you are talking about international equities getting exposure to ETFs, I imagine there are a lot of products.
>> They have JAPN and JAPN.
ME. There is a hedged and an unhedged version. In Canada you can get exposure to Japan on a hedged or unhedged perspective depending on how you feel about the currency. Depending on the volatility of the currency, it can be a massive difference in performance.
>> Interesting stuff indeed. Do you expect Ethereum spot ETFs to eventually be as popular as McWin ETFs?
>> The short answer is unlikely.
If you look at ether ETFs in Canada, it's about $4 billion. That's really only 18% of what we see in a UM versus bitcoin ETFs here in Canada. If you use an analogy, here in Canada, you would say that you'd probably seasonally similar in the US.
Today, it's about 11% in the US of ether versus bitcoin. It's already pretty good given that Easter ETFs just launched recently. But we do see long term it's more likely to go towards the 20% case which is what we see.
>> If we are talking about Ethereum or bitcoin ETFs, we have to talk about the risks.
>> Every time we talk about crypto current sees, there are a lot of risks and when it comes to the ETF specifically, there are obviously market moves, price volatility and that risk there and specifically when it comes to crypto current is, you have custody risk which is a big significant risk for digital currencies.
>> The fact that the issuer actually holds the crypto?
>> Is not the issuers, they'll have custodians and the custodians are fairly large, they are very well-regulated so they are as safe as they usually can be for this industry but at the end of the day, there is always a risk that there is theft or other things that happen so there is the risk of the custodian losing the asset somehow, even though they are in a cold wallet, there is always a risk.
>> Interesting stuff on that space.
Another obvious question. Can you speak to CLB? That's the BMO low volatility equity ETF.
>> Let me talk a little bit about low volatility as a whole.
You have low variance ETFs and low beta ETFs and you have a whole range of products here in Canada that can give you exposure to low volatility. Some of them are really focused on minimum variance.
A slightly lower volatility version of the S&P 500. Many have other products like the Invesco one and the BMO one that provide you a lot lower beta or a lot lower volatility than your traditional index exposure. It really depends with the investor wants.
If the investor wants to plug-in ETF into an existing portfolio that already has beta exposure, exposure to the market, then you're better off using an ETF that really provides you a differentiated return, something like Z LB from BMO that gives you a lot of differentiated return because number one it is beta driven, it's not driven by lower volatility like many of the other ones, but also its performance and correlation is quite different compared to the market, let's say. Some of these like an iShares product, they have minimum variance products and their product moves closely in line with the broad market so that's the better product to use as beta because it obviously would dominate but if you put that on top of an existing beta portfolio, it would not do much. It really depends with the investor wants, if they want to put it into an existing portfolio or if they want to have it as their beta position.
>> You've got to know your strategy and what you want and you need to know what you are buying as well. Things that question. Next question we got here coming in.
What do you think of the bank equal weight ETF ZEB? Does it have a lot of growth in dividends for the long term, 10 years? How does the space work?
>> I don't have a magic ball to know what the dividend projections are. As you mentioned earlier, these ETFs are just wrappers of the underlying securities.
In this case, the Canadian banks. So I really can't forecast what the dividends are going to do for the banks but historically speaking, we have seen about like a five year growth of about 10% so you can take that in C, I've seen that in the past, perhaps it is something similar or different, I really don't know, but at the end of the day, the banks have generally been very good growers of dividends and it ZEB has also been a decent grower of dividends.
>> Interesting stuff there. We are going to get back to your questions for Andres Rincon onyx team traded funds in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
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The TD Direct Investing Index of the month of July has been released and self-directed investor sentiment turned bullish.
Here are the details. Let's start with the overall TD Direct Investing Index, the DII, that measure sentiment in a range from -100 for very bearish to +104 very bullish.
DII sentiment landed at +8 for July, that's a 13 point gain over the previous month. The summertime rally kept its momentum going even as leadership slipped from those mega-cap tech tightens to lower-priced small-cap and value stocks that slipped under the radar in 2024.
When we compare sentiment to July of last year, a modest gain when sentiment was at +1.
Taking a look at the components that make up the DII, we saw improvement in the flight to safety measure which rose 11 points to +7, that means more investors traded in higher risk items such as equities. A negative value means risk off or more flight into safer, less risky investments.
However, fewer self-directed investors but equities at the top of the market.
The proxy for chasing stocks at 52-week highs was only plus one in July, down seven points month over month. Investors rotated out of highflying technology and communication stocks into value-oriented sectors such as financials and basic materials that offered more attractive valuations.
A few key points that stood out. Financial services ranked as most heavily traded sector in July. Secondly, traditionalists, those born between 1928 and 1945, with the most optimistic.
Financials, which previously sat near the bottom in June, bounced back to be the top trade sector in July with a sentiment score of +5, that is up six points month over month.
Meanwhile, the technology sector slipped to the near bottom, something 16 points to -1 in July has those large Tech stocks sold off during the month.
Among the heavily sold stocks and technology were Shopify and chip giants Nvidia and AMD as enthusiasm for AI related stocks waned.
Meanwhile, sentiment for traditionalists climb seven points month over month 2+2 in July. Not surprisingly, the oldest generation favour dividend paying stocks such as PMO, TD and BCE, which were among the top about stocks last month.
And that to her TD Direct Investing Index highlights for July 2024.
[music] We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing. This is the heat map function, giving you a view of the market movers. We are screening the TSX 60 by price and volume. We have the TSX Composite Index in positive territory right now. What's happening under the hood? We've got the financials, and one of them are making oversized gains but this is a heavyweight sector when it comes to that topline TSX number. If the big banks are all up around 1%, and then some, in the Lycos as well, that adds a lot of points to the table. A bit more of a mixed picture in the energy space but you have names like Cenovus and CNQ making some solid gains. A bit mixed in the material space to go. You got some copper names, I want to get you a fresh copper quote here , we had copper up to the tune of almost 3% so some plays they are that are closely related to copper making some big gains but Kinross, will play, is on a little more than 1% today.
South of the border, that whipsaw action we saw last week and the return we have seen to almost pre-selloff levels in the last several sessions has been interesting and it's really been about the economy south of the border.
Inflation seems to be back down to where the markets want to see it. The focus now is the labour market. The economy is cooling slowly in the US. The jobs report jolted the markets but today we got our retail sales report coming in much stronger than affected so it seems the consumer is hanging in, recession fears are starting to ease and you're starting to see big gains across the border.
Walmart is earning its own way through its earnings appropriate a lot of big tech names, Nvidia and Intel in rally mode today.
We are back now with Andres Rincon from TD Securities talking ETFs. Another question for you here. Someone wants to know, how do you compare different ETFs the track the same index? What makes one better than the other?
>> That's a very good question. There are over 5000 ETFs in North America and it can be a little overwhelming when you're looking at let's say ETFs that track the S&P 500. There are so many ETFs already that track the S&P 500. That's a very good question.
There are different ways you can look at it, whether you are a long-term investor or a traitor. Because what you care about is different.
I will give you an example. If you are a long-term investor, you care about long-term cost and holding these ETFs.
That's mostly management fees. You have a cost to get in and out, the round-trip cost of the ETF, which is taken by the spread, there is a spread to get in and out, but if you are only getting in or out once or twice a year, you're a longtime holder, you care about the management fee, the MER, the total ownership cost of that ETF. That's one very key metric when you are comparing many ETFs.
A clear example that is the biggest ETF in the world is the SPY. That is the most actively traded ETF in the world but it's actually more expensive than others which are equally as big and those are better positioned for long-term investors because they are much cheaper and the round-trip cost is much lower. SPY, on the other hand, is better position for active traders because it's a lot more liquid on the board and raise a lot more by institutions. That's one area you look at.
Also look at tracking error.
If you are looking for an index ETF specifically which was the question, you have to look at tracking error.
Are they following the index they are intending to follow? You're going to have some ETF that actually, they move a little bit away from their index for a variety of reasons.
State Street, for example, the SPY, it's a slightly different structure than others.
Because of that, they cannot do a couple of things within the fund. They cannot lead their securities, for example. They do not earn revenue from that. A couple of other factors because of that, they actually underperform a couple of others long term.
That just to give you an example.
Tracking index is very important for a lot of these ETFs and also liquidity of spread. How white is spread?
If the cost to get in and out is quite large, there might be better alternatives.
The other one is liquidity. If I am trading in size, the more these ETFs trade on the board for mom-and-pop that are trying to buy an ETF, the better and easier it is to find liquidity and get in and out of that position.
>> Fascinating stuff there to keep in mind. More than I thought you would need to keep in mind in that space.
Next question. I've noticed that new ETFs often seem to cannibalize older products offered by the same companies. Can you discuss that?
>> I think we can go back to the original discussion when we started our conversation today. As part of the natural evolution of the fund industry.
If you are a mutual fund provided today, you are seeing the industry as a whole, the industry as a whole is consistently seeing outflows. What you want to do?
You're going to go into the structure that is working, which is the ETF structure.
Especially the younger generation here in Canada and the US, they are investing in ETFs. They have to see it and they do see it and so they are slowly and strategically moving into the ETF space.
They understand that often, the cost of ETF's are lower than the mutual fund space so they are being strategic about it but they are slowly moving into that space which is why most mutual fund providers in Canada have exposure to ETFs.
We are seeing that across industries.
The automobile industry. How many cars are not coming out with EVs in the traditionally gas world, right? Why are they doing that? Because they are seeing that the market is growing at a slower pace but it is growing and they see that it's going to be the future.
So all of these many factors are going and saying, it's going to cannibalize some of my gas cars but I know I need to be in this market with what we are seeing in the ETF space.
>> Good analogy on that. We are out of time for questions. Before let you go, we had a conversation off the top about trends in the ETF space. What are you watching going forward?
>> What I am watching, what's interesting to us, is the evolution and the fixed income market. As I mentioned earlier, the ETF spaces a little bit behind the mutual fund space when it comes to fixed income specifically. What we are seeing a lot now in ETF world is the growth of active, Canada is a leader in active management.
We are seeing a lot more of the traditional mutual fund managers coming into the ETF space with actively managed strategies and we can tell you because we have seen this in the US, investors love actively manage strategies when it comes to fixed income. We are seeing growth in ETFs and we are seeing how, back to that question, ETF's are going to cannibalize some of the mutual funds. That's what I'm watching.
>> Always fascinating conversation. Great to have you. Thanks for joining us.
>> Thanks for having me.
>> Our thanks to Andres Rincon, managing Dir. and head of ETF sales and strategy at TD Securities.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your question today, we are going to aim to get them into future shows. We will be back tomorrow with an update on the markets, some highlights from our best interviews of the week and then on Monday show, in the wake of that spike volatility we saw a recently, we will be joined by Emin Baghramyan, VP and Dir. for quantitative equity at TD Asset Management, he will be our guest take your questions about low volatility investing.
A reminder that you can get a head start on questions for that show or any show, just email moneytalklive@td.com. That's all the time we have for today show.
Thanks for watching. We will see you tomorrow.
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