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By Guest Blogger Ryan Lewenza
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Today’s blog is on ETFs and specifically the difference between ‘passive’ and ‘factor-based’ ETFs. While not the most exciting topic, it’s definitely an important one as the ETF space continues to grow and we see a proliferation of new thematic ETFs come to market.
First, let’s start by explaining the difference between ‘passive’ and ‘factor’ investing. I’m assuming most of you have a basic understanding of ETFs so no need to expound on them. If you are a blog reader and don’t know what an ETF is then we have failed miserably on our mission.
A passive ETF simply tries to replicate or track a specific broad market index. It’s pretty simple as the ETF invests in the same securities and weights that are in a particular index. Below I provide an example of a passive ETF. I’ve overlaid the BMO S&P/TSX Capped Composite Index ETF (ZCN) with the S&P/TSX (TSX) Composite Index. You can see that the ETF tracks very closely with the TSX since it’s invested in the same stocks and weights. There is no portfolio manager selecting which stocks to buy, instead it’s a computer program monitoring the two and trying to keep them aligned.
Market markers are traders and investment firms that are responsible for supporting an orderly market, basically buying and selling the ETF and underlying securities to help ensure that the ETF properly tracks the index.
The main benefits of these passive ETFs are: 1) they are inexpensive (ZCN only charges 6 bps annually for expenses), 2) transparent (you know exactly what it’s invested in), and 3) they are very liquid so they are easy to buy and sell.
Now sometimes there will be deviations from the ETF and index (in this case the TSX), which can be attributed to ‘tracking error’. Tracking error measures the difference between returns of the ETF and the underlying index. If the ETF company and market marker are doing their jobs correctly, the tracking error should be low and therefore the ETF is providing a very similar return as the underlying index. This is one of the many factors we consider when making our ETF selections.
Passive ETF (ZCN) with the S&P/ TSX Composite Index
Source: Stockcharts.com, Turner Investments
A factor-based ETF in contrast tries to isolate for specific characteristics or ‘factor’ such as dividend yield, size or value. Here the ETF company will screen all the different stocks in their universe for these different factors, then employing their methodology, invest in what they believe are the best companies for the specific factor.
For example, you could have a factor ETF that only invests in dividend-paying stocks. The ETF company will then determine what they believe are the best criteria for selecting dividend stocks, then invest in say 30-40 of the best dividend companies. The ETF provider could determine that dividend growth over the last five years and a lower payout ratio are the best criteria for picking dividend stocks, then use this criteria to invest in the best ones.
While there are a number of different factors that the industry and asset managers look at the main ones are: size, value, momentum, quality, dividend yield and low volatility. So the ETF companies then create these different ETFs that focus on these different factors. You could purchase an ETF that invests in the lowest volatility stocks (this is what we owned just prior to the pandemic) or invest in high momentum stocks.
The benefits of these ETFs are: 1) it provides investors with more options and allow them to invest in these thematic investments and factors, and 2) the ETFs can help to reduce risk or improve portfolio performance if properly integrated within a broader portfolio. The rub with these factor ETFs is that the annual management fees are higher for these funds since it’s not just a computer and an algorithm making the buys/sells to track the index. There is an individual or team determining which are the best companies to invest in the ETF for that specific factor.
Now this is where it gets cool. That’s right! ETFs and investing is cool! You should tell your friends.
You can incorporate the business cycle and outlook for the economy/markets with these different factors. As I often tell clients, the business cycle is probably the most important thing we track and try to predict. The reason for this is that different investments or factors will do better or worse, generally, depending on where we are in the business cycle.
Below is a great chart from Fidelity, which illustrates the performance of the different factors over the stages of the business cycle. For example, I believe we’re in the mid part of the business cycle with the global economy now in growth/recovery mode for two years.
This mid-cycle period is characterized as positive but moderating growth, exactly what we currently have. During these periods momentum and value stocks tend to outperform.
Momentum is not for us given the volatility, but boy do we like value stocks right now and see them outperforming.
As we progress through 2022/23 then I think we start transitioning into ‘late cycle’ where we’re getting closer to an approaching recession. When we believe this is occurring we’ll look to bring back that low volatility ETF, since as you can see in the chart it tends to outperform along with quality and dividend yield.
Now what?
At Turner Investments we focus on lower cost passive ETFs but then weave in some factor ETFs into the portfolio based on our bigger picture view. Just before Covid hit we had a lot of low volatility, high quality and dividends stocks, which as you can see in this informative chart is typically what outperforms. Now we love those value stocks based on where we believe we are in the business cycle. This is why we like these factors ETFs and include them in our client portfolios.
Factors and the Business Cycle
Source: Fidelity Investments Canada
Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.
80 comments ↓
“He was spotted in the Etihad First Class lounge in the Abu Dhabi airport on Friday. Look out, truckers and realtors.”
I hope he was there in transit…otherwise teaching them human rights…with the way he talks about Dorthy, there’s no way he was there for another wife.
Great post, Ryan.
Og
ETF = Elephant Tranquilizer Fart? Those are nasty!
Of the 60% equity portion of a B&D portfolio, what is the general portion allocated to factor investing? Do you ever deviate mightily from that allocation amount?
Abu Dhabi airport, you say? Was he hanging out with Kevin O’Leary who just this week bragged on CNBC about getting his UAE citizenship? Money can buy a whole lot of things, I see…
Interesting info.
Well done Ryan.
I’m learning more financial terms every day… my brain hurts.
That photo at the bottom is the scariest breed of domesticated animal I’ve ever seen……
While busy composing my comedic turd about ETF acronym, I forgot to congratulate you on the updated Business Cycle graphic. Kudos! The added colour modernizes it over what you used here: https://www.greaterfool.ca/2018/05/12/my-approach/
Thank you Ryan!
I cheat with my ETFs by having them in an all in one global growth fund with 5% Euro Equity and 5% U.S Equity on top, to cut down on Maple and bonds and get me to where I want to be.
It’s not really cheating if no one really cares…
M47BC
The Top ETF Use Cases of Institutional Investors.
https://www.visualcapitalist.com/the-top-etf-use-cases-of-institutional-investors/
Garth in Abu Dhabi? The UFC fighting capital of the world?
The secret’s out
Market markers?
Ryan, you meant market “maker”.
When the cat’s away…..the mice will play!
Last few posts have been immensely helpful…the more I know…the better decisions I can make! Tax season and investing has been one hell of a self learning curve!
Thank you all again!
Well done, Ryan! A clear explanation.
Another blessing – one more day without any dogawful canine pictures.
Btw, did you know, the elastic gum bubble in today’s photo has an IQ that is 75% higher than an average golden retriever.
Thank you very much for educating us Ryan.
Appreciate every blog entry from all of you.
Very happy to hear Garth is back tomorrow :)
George Michael on 02.12.22 at 9:55 am
not going to good for T2…
‘Approval of the federal government has dropped from 44% to 38%. Disapproval up from 40% to 45%.’
‘Positive impressions of Justin Trudeau at 36%, negative at 46% for a net score of – 10. His negatives are the highest we have registered’
=======================================
Hey George,
Good info.
Here’s an example of real life poll application:
https://www.gocomics.com/calvinandhobbes/2022/02/12
Cheers, R
And thanks for the ETF update Ryan.
But I am curious as why, with this kind of knowledge within the TI group, your 5 – 10 year portfolio average is only 7% target.
Seems like it should be easy to nudge an 8% avg with some factoring ETFs.
Four major USA market indexes -9% average YTD.
Unpurchased rebalance shopping list now down 7%.
How much longer do I (dare) hold this cash?
How much disruption/decline can a 400% rate hickup/rise cause, before TINA regains universal respect?
Where’s Emma Zaun of CUPE? These guest bloggers are being overworked. :) Churning out content day and night for the Boss.
——-
We pay high taxes for our social safety net! Wrong. This Former First World country fell with the rest of ’em in March 2020. If you need something done Medical Tourism is your only answer.
Rationed health care is a way of life now.
.Ontario allowing non-urgent, non-emergent surgeries to gradually resume (toronto.ctvnews.ca)
—
—- WW3 update (it kicked off March 2020 and will not be ending any time soon, this is Year 3).
Freedom Occupation Forces have taken up positions in the Capital City – and nationally, in other cities.
Several US Border crossings have been seized, supply lines are strained. Textbook wartime strategy.
Our rulers are playing the Long Game here. Up next are new PERMANENT laws. Ontario said as much.
“State of Emergency” is our Reichstag fire moment: https://en.wikipedia.org/wiki/Reichstag_fire
.Elton John’s farewell tour to skip Canada next month over COVID-19 restrictions (cbc.ca)
So how does one adjust their weightings? For example, I usually have 30% of the stock portion in a passive TSX ETF, but currently have reduced that to 20% and have 5% in XEG (Canadian Energy) and 5% in ZEB (Canadian Banks) which are both value plays. Is that fair, or is better to just have a more broad based Canadian Value ETF?
Thank you for this post Ryan, but none of this is new.
These investing styles have been around forever, it’s just that 30 years ago, the available funds didnt necessarily describe themselves in this manner. “Closet indexing” was common as well.
O’Shaugnessy at RBC had both growth and value metrics in his canadian equity fund. It basically broke down to momentum and dividends. It’s MER was low for the day and investors flocked to the fund so quickly he had to shut the taps off and also expand into the US market due to the lack of stocks that met his specs in Canada.
Before indexing was highly available, Pape also
identified the need to diversify across investment styles.
I also notice the increased MERs if there is any hint of active management. I would argue though, that with the info and software out there, it should be easy for fund providers to select investments based on the input criteria.
A good portion of my total investments are still indexed, but now I need yield as well. I’m researching global
dividend ETFs. MSCI, Dow, NASDAQ all provide “indexes” but I am surprised that the resulting sector
weights can be very different between providers.
Any suggestions blog dogs? Thanks.
Ryan, do ‘factor’ ETF’s provide a breakdown of which factors that particular ETF is using to pick stocks? If not, how would an investor know which factor ETF to choose if they had a particular combination in mind for their portfolio? Regarding passive ETF’s I’m presuming that there must be at least one passive ETF that tries to align with the Dow? If not, why not?
#12 Wrk.dover on 02.12.22 at 11:55 am
Four major USA market indexes -9% average YTD.
Unpurchased rebalance shopping list now down 7%.
How much longer do I (dare) hold this cash?
How much disruption/decline can a 400% rate hickup/rise cause, before TINA regains universal respect?
———
Let’s examine with a fun Q&A:
Q1: Has buying the index dip been a winning strategy for the last 100 years?
A1: Yes
Q2: Are the indexes currently experiencing a dip?
A2: Yes
Q3: Does anyone ever time it exactly right for maximum possible benefit?
A3: No
#12 Wrk.dover on 02.12.22 at 11:55 am
Four major USA market indexes -9% average YTD.
Unpurchased rebalance shopping list now down 7%.
How much longer do I (dare) hold this cash?
How much disruption/decline can a 400% rate hickup/rise cause, before TINA regains universal respect?
————
Wait until the market has bottomed out.
Please let me know when that is.
Welcome Back Bankish
I had not seen any posts from Bankish in a long time. As the name suggests, he was heavily into bank shares and that and other good moves have paid off.
from yesterday…
#83 Bankish on 02.11.22 at 8:03 pm
Great post!
I took the commuted value of my 36 year pension at age 62 in 2016. The company health plan had already been split off, so I was able to retain it in retirement. There was a retirement bonus, so between it and savings I did not have to use any money from a blue chip stock dividend RRSP and LIRA portfolio for two years. Long story short my all dividend portfolio now pays 50% more and capital growth has also increased 50% in 6 years.
The downside to this is during market collapses you have to not panic and sell. Sounds easy but it is not.
When you convert your LIRA to a LIF one can transfer 50% to your RRIF.(Do it as it gives you more flexibility)
All my RRSP contributions were at least 43% and so far we have paid no more than 20 % in tax as we tax split everything including my CPP(you have to fill out forms). Hope this helps someone to make a more fact based decision
5 Flop
“I cheat with my ETFs by having them in an all in one global growth fund with 5% Euro Equity and 5% U.S Equity on top, to cut down on Maple and bonds and get me to where I want to be.”
———————————-
Nothin’ wrong with that flop.
Disclosure – that is what I did with our RRSPs. I’ve got one large balanced index, but yes, too much maple, so my wife’s RRSP has larger US and int’l components.
11 Russ
“But I am curious as why, with this kind of knowledge within the TI group, your 5 – 10 year portfolio average is only 7% target. Seems like it should be easy to nudge an 8% avg with some factoring ETFs.”
————————
Long term, the total of all investing styles breaks down
to the index. Also becomes more what one’s personal situation and tolerance is. Do you want to protect your investments as you near retirement? Sacrifice some potential upside for lowered volatility. Need some income instead of growth? Search for dividends. Tax implications to be considered too.
Growth vs value, that’s a tough one.
While I respect your post Ryan, and own ETFs that track major indices, it just seems that specialty (factor) ETFs are a form of market timing?
Over many years as a retail investor, building a portfolio that mirrors a global benchmark has proven most profitable compared to other methods like growth, value or momentum plays. Did I miss something?
#100 crowdedelevatorfartz on 02.12.22 at 8:36 am
@#82 Flop.
“Australian Superannuation instead of RRSP”
“But the OZ pension was, by far, the best.
How many years did you pay into it and , as a dual citizen, are you still obligated to vote in Auzzie federal elections?”
//////////////////////////
Morning Crowdie, no Aussie pension for me.
Just a superannuation fund, probably 90% funded by myself and 10% employer.I lived there in a time there was no mandatory contributions, the last time I think I read something like 9% of your wage was expected to be contributed to your superannuation, possibly matched by employer.
Like I said, I started this in the dinosaur times of superannuation when the rules were minimal.
My father, when I was 18, just 2 weeks after the candles were blown out contacted mutual fund salesman and they appeared in the family’s living room with paperwork to sign.
I had been working full time already for 3 years and with a paid off car my Dad didn’t want me to spend all my money on booze and girls.
I remember him telling me “One day you are going to have to fend for yourself.”
His words were prescient because I have been estranged from my family for most of my adult life, and my early saving and investing habits have kept me from sleeping under a bridge.
As far as your question as to how long I made contributions to that fund, to focus on my North American Portfolio of TFSA and Non-Registered, I stopped contributing in 2019 and am just going to let it compound until retirement,so I paid a monthly sum of an average I suspect of around $200, between 1992-2019
I paid into this fund no matter what other financial restrictions I faced in life during that time, whether that be paying off a mortgage, backpacking around the world for 3 years, establishing a new life in North America, or basically being semi-retired due to medical problems in some of my prime earning years 35-45.
Have not voted in Australian election probably since mid 90’s, just as I was leaving the big election issue was bringing in a GST, I thought I was only going to be away for 2 years, not over 2 decades.
I only worked in Australia roughly 10 years, 15-25, so I have worked in North America far longer, 27-47.
The will be a day in the next few years where I have lived in Canada longer than Tasmania.
Yesterday I saw that Koalas have been classified an endangered species.
Maybe the supposed extinct Tasmanian Tiger is alive and well and just hiding out in Vancouver…
M47BC
Absolutely stay with value stock ETF’s.
Specifically undervalued value stock ETF lists as the Fed has lost all control – I mean … ALL control … of inflation. Insane outright mishandling of monetary policy has been their lot .
Talk of inflation getting under control later in the year…well, believe the lies and outright misinformation to that regard at your own peril.
Talk of a retreat in the inflation index that will come with a couple of tiny ineffectual interest rate increases?
You’ve got to be joking and who can believe that. Misguided fools believe and there are many.
Further manipulation of an already highly manipulated CPI means of inflation calculations will bring a supposed temp retreat in inflation alright…the kind of retreat you get on coastal shorelines just prior to when an epic tsunami comes crashing in.
And a soon coming tsunami of real inflation hitting us at upwards of 20% annually.
Real inflation currently sits at around 15% and rising.
15% using the original CPI method of calculating inflation before it was corruptly adjusted to serve corrupt monetary policy making that brought us to this near unrepairable – won’t get fixed easily, mess we’re in today.
Some of the choice tech stocks and growth stocks will find their way through the wall of fire, but many will suffer…really suffer later on with unabating structural inflation taking/taken hold.
Two thumbs up for value stocks…
Thumbs down on most growth and tech stocks looking ahead.
Tractor dude in his younger days.
https://twitter.com/DudespostingWs/status/1492572400109633540
Dr V on 02.12.22 at 12:37 pm
…
Long term, the total of all investing styles breaks down
to the index. Also becomes more what one’s personal situation and tolerance is. Do you want to protect your investments as you near retirement? Sacrifice some potential upside for lowered volatility. Need some income instead of growth? Search for dividends. Tax implications to be considered too.
===============================
Thanks Doc,
And for the reply yesterday too.
In retirement now, as a spousal unit, we have ~6K coming every month from dividends, OAS and pensions. All qualify for 50% split for tax and easily covers monthly living costs, including some travel.
Portfolio equities is at 50% (mix of CND, US & little less of Europe) with maybe 5% considered volatile.
The advisor counts 30% in RIETs & MIC as fixed portion. I am a little concerned, not shard by advisor, that it is basically a large weighting to Canadian real estate but it does generate a nice revenue stream to reg accounts.
RRSP transfer to non-reg @ 30K each per annum to melt it some before age 72.
All comments are welcome.
Cheers, R
Linda “ Ryan, do ‘factor’ ETF’s provide a breakdown of which factors that particular ETF is using to pick stocks? If not, how would an investor know which factor ETF to choose if they had a particular combination in mind for their portfolio? Regarding passive ETF’s I’m presuming that there must be at least one passive ETF that tries to align with the Dow? If not, why not?”
Yes each factor ETF will have a website page outlining what the factor is and their methodology for selecting the individual securities. For a Dow Jones ETF you can just google Dow Jones ETF and you’ll find a list of different ETFs that track that index. But I would recommend going with an S&P 500 ETF over Dow Jones ETF since it’s better diversified. – Ryan L
#18 MarkeTimer on 02.12.22 at 12:34 pm
Wait until the market has bottomed out.
Please let me know when that is.
_______________________________
Grand Master Garth called it clearly, a few percent above the covid bottom, back when!
I expect, the bottom of this 9% drop is imminent, to be followed by a deeper go though, just like the other bottom had a couple weeks ago.
Nothing makes sense when interest makes negative cents!
Hi Ryan,
The s&p500 holds a diversified series of the 500 largest value, and growth stocks. As the economic conditions change, wouldn’t the index simply rebalance between the cycle phases you identified. If this is indeed the case, why not simply buy the s&p500 index and hold it long term. Thanks
I just heard that the federal Reserve is having an emergency meeting on Monday
Ryan, honest to God I’m doing what you recommend and its paying off.
Even an ETF for high dividend etc. companies.
And,
yeah oil
ETF, ETN.
—————————
Heads up to all, may be bluster, political posturing but NOT LOOKING GOOD for UKRAINE.
Invasion could come in 48 hrs to Wednesday?
https://twitter.com/bsant54/status/1492493734382125059
https://www.bbc.com/news/world-europe-60361983
https://kurier.at/politik/ausland/ukraine-invasion-am-mittwoch-der-informations-krieg-tobt-schon-jetzt/401903551
Canada, quietly saying the same:
https://twitter.com/nationalpost/status/1492491716590514179
Have dividends to reinvest…HOLDING OFF until Wednesday at least.
PS:
Putin, Biden talking at each other not to each other.
Wait and see.
———-
GARTH get the hell out of Dodge and I hope that flight is well South of the Black Sea.
Thank you,
Would you be able to provide an example of quality, low volatility, value, momentum, size, dividend yield?
Trying to understand what would belong where.
Thanks
A Thunk:
IF Russia does invade Ukraine. How would that effect markets/etc etc?
Obviously if it kicks off ww3, there wont be much of a worry about my retirement.. But hoping that doesnt happen.
SPQR not happy.
Giving Commodus a bad rep.
https://twitter.com/JamesHMackay/status/1492366259337502723
Hello Ryan, I would like to know if an etf provider ever goes bankrupt, what happens to the money I have invested through its products? if for example I have a government bond etf in Blackrock and it goes bankrupt, I don’t think the CDIC will compensate me…
for those concerned about Ukraine and stocks keep in mind: equities crash on initial fear (duh) but also rally hardest when a fearful thing is known or passes. Think about Nov, 2020 when the electin pased and there wasn’t bedlam equities took off. (this efect has much to do with options market dynamics)
Point is that if you arent inverted when a de-escalation is anounced- you wil miss out on some mega gains.
Not predicting how things will unfold. It looks bad. But don’t fail to at least consider that the narrative might be overhyped. When people talk about tail behaviour there are also upside tail events to hedge for.
I recall DFA did some research showing momentum is hard to capture after costs due to all the turnover.
25 Russ
“In retirement now, as a spousal unit, we have ~6K coming every month from dividends, OAS and pensions. All qualify for 50% split for tax and easily covers monthly living costs, including some travel…….
RRSP transfer to non-reg @ 30K each per annum to melt it some before age 72.
All comments are welcome.”
———————————-
Ahhh the 50% split with $6k is sweet. The downside is
the public and any private pension income is taxed
fully along with the RRSP/RRIF. The dividends should not be taxed at all at that income level, just remember there is a dividend “gross up” when calculating total income.
Something to think about for the $30k RRSP/RRIF
withdrawals is the marginal tax rate you could enter into with a portion of that money. Provincial tax brackets are at the right hand side of this page
https://www.ey.com/en_ca/tax/tax-calculators
In BC, the big jump appears at about $50k, which would leave you with only $14k each until you hit the higher tax. BC is also a little weird in that the tax rate drops from $36-43k for reasons explained at the bottom of the
sheet. Any cap gains or dividends in a non-registered account still enjoy advantages over the $50k threshold.
My advisor got some new software to help in this. We had both originally thought drawing down the RRSP early made sense, but the software showed a mix of all our accounts was more tax efficient.
#18 MarkeTimer on 02.12.22 at 12:34 pm
#12 Wrk.dover on 02.12.22 at 11:55 am
Four major USA market indexes -9% average YTD.
Unpurchased rebalance shopping list now down 7%.
How much longer do I (dare) hold this cash?
How much disruption/decline can a 400% rate hickup/rise cause, before TINA regains universal respect?
————
Wait until the market has bottomed out.
Please let me know when that is.
+++++++++++++++
I skipped the quarterly investment of my div income just recently. I hate holding cash but i am going to wait till after the olympics cuz if Russia and China are going to invade Ukraine/Taiwan i expect a bit of a dip if that happens. I got very lucky in 2019 and caught the almost bottom for several bank stocks.
Maybe i will get lucky again. If not i will carry on as usual.
#17 Sail Away on 02.12.22 at 12:31 pm
Q1: Has buying the index dip been a winning strategy for the last 100 years?
A1: Yes
_____________________________________
The dip is the only thing I want to own.
Waiting for the top to recover from 1929 until 1954 had to be terribly boring.
Will Garth have to get a PCR test to re-enter Canada?
Garth been rubbing shoulders with Juan Carlos?
#16 Linda
To figure out the factor exposure, you can look up the ETF you are considering on ETF.com or portfoliovisualizer.com
I would be wary of just using the ETF name – they can say things like value etc, but don’t have much of a factor weighting when analyzed.
I use AVUV (U.S. listed) for US small cap value. Has small cap, value, and also removes low momentum stocks (a drag when using value as a factor).
-LD
Advantis has some good factor ETF’s.
I look at factors as another way of diversifying beyond Beta (market exposure) and capturing some more premium from the increased risk. I guess you can do that “passively” by having a fixed tilt towards a factor or a few. Adjusting the allocation based on the economic cycle is more of an active “tactical asset allocation” approach.
I like your chart on factors and the economic cycle. What timeframe is the typical economic cycle in that chart? I am truly interested. Factors like value for example can under or outperform for really long periods (like a decade).
Thanks for the great post!
-LD
mark “I recall DFA did some research showing momentum is hard to capture after costs due to all the turnover.”
Sounds about right. I don’t think we’ll ever invest in the momentum factor. That’s not what our clients are looking for. – Ryan L
There is, so far as I can see, no immanent invasion of Ukraine planned, or so the Russians say. What we are looking at more is NATO attempting to tell Russia where in Russia they can park their equipment. Meanwhile NATO keeps marching towards the Russian border.
To me it sort of makes sense that if Russia perceives NATO to be their main threat, they would have most of their army parked on their western border. Where else should they park it? Siberia maybe? In case the reindeer get feisty?
There is a psy-op going on here. The problem is that it is hard to figure out who is running it. Who knows, maybe the dreaded “Super Bowl Invasion” will materialize. It’ll probably make for a lot better TV than the game. Either way get your popcorn before Costco runs out.
Also curious to see how the US military doctrine of “pre-emptive defensive strikes” factors in to their thinking. If the Russian invasion is a sure thing, why not blow up all the tanks where they sit? Or could it be that Ukraine isn’t really worth defending? I mean, it doesn’t really matter to me which dictator they have.
#32 Blobby on 02.12.22 at 3:13 pm
A Thunk:
IF Russia does invade Ukraine. How would that effect markets/etc etc?
Obviously if it kicks off ww3, there wont be much of a worry about my retirement.. But hoping that doesnt happen.
+++++++++++++++
I don’t think Putin will invade or wants to invade Ukraine. Costs would be too high in blood and treasure and he would be trying to occupy a country of 40 million people right next door that would be Russia’s sworn enemy forever. The US, the EU, and some NATO countries would be funding resistance movements in Ukraine, Crimea, and possibly other Russian satellite republics as well.I think the US and NATO are playing him now by exaggerating the risks of war. He is stuck in a corner like the boorish Bolshevik that he is and he can’t get out. If he cuts off gas to EU Russia’s credibility is done and he will never get that back. And other sources of energy will replace it. I think the game now is for him to find a way to save face and back off.
28 JSS
Hi Ryan,
The s&p500 holds a diversified series of the 500 largest value, and growth stocks. As the economic conditions change, wouldn’t the index simply rebalance between the cycle phases you identified. If this is indeed the case, why not simply buy the s&p500 index and hold it long term. Thanks
——————————-
“And the index will balance itself.”
I like it. OK if I use it?
#112 Don Williams on 02.12.22 at 12:45 pm
#110 Sail Away on 02.12.22 at 10:50 am
#64 XEQT and chill on 02.11.22 at 6:21 pm
#15 Sail Away on 02.11.22 at 12:47 pm
My firm does a decent RRSP match.
And logically, in response to paying them more: that is literally the exact thing I’m attempting. Logic.
Explaining benefits to staff who may not understand fully is my business.
*********************************
In my early engineering days I was staff with Lavalin (pre SNC-Lavalin). They offered generous RRSP matching plans. It was surprising how many didn’t understand enough to take full advantage. I think it’s great SA is helping employees with this.
——- –
True enough. I’ve witnessed the same lack of understanding when it comes to $$. It’s a good thing SA takes the time to fill his non-financially astute employees in on the benefits, because 110% there are a few who have no clue. You wouldn’t believe what I’ve seen in the past. Free money on offer, but folks think they’re getting screwed over instead!
whats an ETF?
does it stand for “extinct truckers fund?
#28 JSS on 02.12.22 at 2:42 pm
The s&p500 holds a diversified series of the 500 largest value, and growth stocks. As the economic conditions change, wouldn’t the index simply rebalance between the cycle phases you identified. If this is indeed the case, why not simply buy the s&p500 index and hold it long term. Thanks
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I and 69% of our portfolio agree; K.I.S.S.
Those 500 companies are already globally diverse, and they are at the top for (mostly) good reasons. Either the products/services are great, they have a monopoly, or they lobby hard enough to keep on winning.
As for Value vs Growth, the last time it was checked on this blog, I believe the results were that it’s about 50/50.
P.S.
The rest of our super boring PF is split between XIU & IEF for some volatility dampening and further balance.
Our Forum Host must have been in UAE securing an oil supply for the Hummer’s fuel tank.
https://finviz.com/futures_charts.ashx?t=CL&p=w1
—
— One person’s opinion on the future here in the Republic of Fizerstan:
https://twitter.com/DrJuliePonesse/status/1492223162888724481
JustinTrudeau’s 2021 deal with Pfizer (35M boosters in 2022 & 30M in 2023) and the option to extend vaccine delivery until 2024 up to 120M doses, means he MUST keep the mandates on pain of breaking the contract or wasting funds.
—
—Leaving you with a choice of MRNA or MRNA. The first time it’s ever been used.
Johnson & Johnson halts production of single-dose COVID-19 vaccine, report says (cbsnews.com)
Garth in Abu Dhabi? Is he representing the migrant worker, or is he doing business with oil tycoons to clean their gains in the TSX?
Truckers are not our enemies. They are standing up for what they and many people believe in. Just like Garth and his flags (Good on him) Methinks the same people that stole the flags have issues with the truckers too…. Realtors…. now that’s a whole other story!
You gave the example of ZCN, an ETF on the TSX. Both Canadian. I wish you mentioned the pros/cons of using a Canadian ETF to invest in U.S. markets like the S&P and NASDAQ. There might be tax advantages to using a Cdn ETF rather than a U.S. based ETF.
Ryan, isn’t there an element of timing to use the factor ETF’s like you mention? You have to correctly assess where you are in the business cycle – and act in advance to exploit the upcoming trend? Is there a risk to this? Or is the cycle frequency slow enough that this risk is minimal?
And what breed is that spectacled mutt today? Is it a Turnerhound, sometimes found in the middle east?
I like the idea that , for a fee, a mutual or ETF fund manager would as you say ‘choose the best’ of the offerings out of the index. It gives one the impression that they avoid owning the dogs and better returns could be expected. But, it doesn’t explain why theses ETF and mutual funds don’t mirror the performance of ‘ the best’ . It’s easy to just buy Royal Bank stock for ex which has a 4318% return over time. Why pay fees when you can just buy the stock? No ETF has achieved that kind of return. So what holds them back , if they ‘just buy the best’.
#46 Nonplused on 02.12.22 at 6:26 pm
There is, so far as I can see, no immanent invasion of Ukraine planned, or so the Russians say. What we are looking at more is NATO attempting to tell Russia where in Russia they can park their equipment. Meanwhile NATO keeps marching towards the Russian border.
To me it sort of makes sense that if Russia perceives NATO to be their main threat, they would have most of their army parked on their western border. Where else should they park it? Siberia maybe? In case the reindeer get feisty?
+++++++++
Why does Russia have nuclear weapons in Kaliningrad which is a small piece of territory between Poland and Lithuania on the Baltic Sea ? Did they run out of storage space in Russia ?
#17 Sail Away on 02.12.22 at 12:31 pm
———
Let’s examine with a fun Q&A:
Q1: Has buying the index dip been a winning strategy for the last 100 years?
A1: Yes
++First of all, I doubt you’re old enough to know how the last 100 years panned out. This ‘strategy’, if we can call it that, has only worked out over the past 12 years. I caution continuation as we’re in a different phase. BTFD is not going to work out well, I’m sure.++
Q2: Are the indexes currently experiencing a dip?
A2: Yes
++Dips can become trends…careful!++
Q3: Does anyone ever time it exactly right for maximum possible benefit?
A3: No
+++Exact timing isn’t necessary. +++
The ONLY strategy that works in ALL markets is to buy LOW and sell HIGH. But you gotta buy strategically and gradually.
XEI (Canadian High Dividend ETF) is as good a place as any to park your C$. DRIP it and watch it snowball.
“#54 BK on 02.12.22 at 9:41 pm
Truckers are not our enemies. They are standing up for what they and many people believe in. Just like Garth and his flags (Good on him) Methinks the same people that stole the flags have issues with the truckers too…. Realtors…. now that’s a whole other story!”
These aren’t “truckers”. These are people that believe the vaccines are just a front for Bill Gates to implant a 5G microchip in your body to track you for some absurd reason. They’re ridiculous and yet dangerous st the same time. No Quarter.
The hilarity of our current politicians situation will be even more restrictions and laws being imposed as it’s all they know to do.
Group think vs experienced working class.
Not even close to being a fair fight!
Politicians know better where experience can be shared and passed down.
Think about it.
#58 +++++++++
“Why does Russia have nuclear weapons in Kaliningrad which is a small piece of territory between Poland and Lithuania on the Baltic Sea ? Did they run out of storage space in Russia ?”
I think you need a geography lesson. Kaliningrad is in Russia.
I am so Proud to be a Canadian!!!
And Ryan…. you must be Proud to be from Windsor.
The world watched us STAND-UP.
#59 tc-contra on 02.12.22 at 11:41 pm
#17 Sail Away on 02.12.22 at 12:31 pm
——–
Let’s examine with a fun Q&A:
Q1: Has buying the index dip been a winning strategy for the last 100 years?
A1: Yes
———
First of all, I doubt you’re old enough to know how the last 100 years panned out. This ‘strategy’, if we can call it that, has only worked out over the past 12 years. I caution continuation as we’re in a different phase. BTFD is not going to work out well, I’m sure.
———
When there’s a fundamental shift and buying the dip stops working will be time to change tactic. Is this that moment? Hard to say. Why now and not any other time? There will always be fluctuation when emotions run high. Or, as I like to call it: feeding time.
With continually increasing population and supporting industry, expansion is inevitable. So is eventual resource exhaustion, of course, but we’re still firmly in the expansion stage.
if Putin decides to invade the Ukraine and annex everything to the Dnieper River, in the name of self defense, Biden and Macron will do nothing. probably yell something about sanctions, and the Russians wont’ care. “the West” won’t do a damn thing.
Putin will just cut off natural gas supplies and whatever else from Europe. considering the idiots in Germany decommissioned their nuclear plants to put up windmills and solar farms… Putin has them by the balls.
“We have to be willing to confront the world as it is, not as we want it to be if we’re going to be successful.”
— Barry McCarthy
My my my.
Could we be seeing an election sooner rather than later?
Conservative MPs, Bloc Quebecois MPs and even some Liberal MPs are asking for an end to the Covid lockdowns….
All while Trudeaus “popularity” wallows in the gutter at levels showing only 16% of voters support him..
Poll numbers so low one person opined, ” I haven’t seen polling numbers this low since the last days of the Mulroney Govt…..”
https://nationalpost.com/news/politics/this-could-cost-him-his-job-a-blockaded-canada-turning-on-trudeau-poll-finds
A dithering, ineffectual WOKE-ster with delusions of grandeur that only has himself to blame.
Pierre Poillievre’s rise to be the Leader of the Cons can’t come soon enough.
#34 Chicken wings on 02.12.22 at 4:04 pm
__________________________
this is a real risk. look up the collapse of XIV and SVXY
both lost 95% + value in one day and XIV was shut down by what was called in the prospectus “an acceleration event”
if you look at what happened in 2020 curing the Covid collapse, you’ll see some Canadian Bond ETF’s collapsed in value as liquidity disappeared, even though the valued of those bonds went up.
you would have to check out the prospectus of the ETF’s to see how the company would handle and event like that.
think about corporate bonds etf’s. what happens there’s a real collapse in corporate? if we head into an event where nobody wants corporate bonds any more? how do those ETF’s handle that? shut it down? no liquidity?
for the most part, i would say the bigger stock etf’s are fine. most of the underlying holdings are liquid enough. but you could get caught up in an event where there might be an issue. those leveraged ETFs could easily blow up.
#63 Ted on 02.13.22 at 6:09 am
#58 +++++++++
“Why does Russia have nuclear weapons in Kaliningrad which is a small piece of territory between Poland and Lithuania on the Baltic Sea ? Did they run out of storage space in Russia ?”
I think you need a geography lesson. Kaliningrad is in Russia.
+++++++++++++++++++
Wrong. Look at a map.
Ordinary Blog Dog “ Ryan, isn’t there an element of timing to use the factor ETF’s like you mention? You have to correctly assess where you are in the business cycle – and act in advance to exploit the upcoming trend? Is there a risk to this? Or is the cycle frequency slow enough that this risk is minimal?”
You can call it what you want but we actively manage the portfolio based on our outlook. We keep to the 60/40 asset mix and being geographically diversified but we will make tweaks to our holdings based on our outlook. – Ryan L
Does anyone have experience with covered call ETFs? Looking at ZWC, which has a high yield but I understand will not do as well in rising price environments.
Looks like Trudeau will be saved by Ford. 100K fines and permanent revocations of CVOR’s, plus up to a year in jail. That should get some attention. Only 4K protestors showed up this weekend, so I’m calling it done some time this week as the Police will have a manageable crowd size. It would be sweet if they all just up and rolled out in unison, of their own initiative – before they’re told to pack up. The protesters couldn’t have hoped for a better outcome with this rally, hopefully they don’t make a scene (a globally watched one) when it’s time to go. They made their point, caused damage to Trudeau’s rep, fractured a few Libs off the party narrative, received global coverage and financial support. Mission accomplished, it’s high time to head home while it’s still a win. Trudeau brought pathetic verbal accusations, but Ford is rolling out the howitzers…
#46 Nonplused on 02.12.22 at 6:26 pm
There is, so far as I can see, no immanent invasion of Ukraine planned, or so the Russians say. What we are looking at more is NATO attempting to tell Russia where in Russia they can park their equipment. Meanwhile NATO keeps marching towards the Russian border.
To me it sort of makes sense that if Russia perceives NATO to be their main threat, they would have most of their army parked on their western border. Where else should they park it? Siberia maybe? In case the reindeer get feisty?
There is a psy-op going on here. The problem is that it is hard to figure out who is running it. Who knows, maybe the dreaded “Super Bowl Invasion” will materialize. It’ll probably make for a lot better TV than the game. Either way get your popcorn before Costco runs out.
Also curious to see how the US military doctrine of “pre-emptive defensive strikes” factors in to their thinking. If the Russian invasion is a sure thing, why not blow up all the tanks where they sit? Or could it be that Ukraine isn’t really worth defending? I mean, it doesn’t really matter to me which dictator they have.
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Yup. A buffer zone is what Putin wants. A memory from WW2.
I think were are witnessing the early struggles in a return to regional powers. Or could be the beginning of WW3? Mutual assured destruction unless someone has a new weapon.
What would you do if you neighbour pointed guns at your house.
Then we have the much needed distraction of imminent war…never let a good crisis go to waste.
Hi # 52 TurnerNation,
Given your post,
Just wondered if you have seen Dr. John Campbell YouTube on Fri Feb 11, 2022 covering a study of;
M………. after ……….., firm data
Link not included, if interested hopefully you can find it on YT still.
#67 Sail Away on 02.13.22 at 9:26 am
“We have to be willing to confront the world as it is, not as we want it to be if we’re going to be successful.”
— Barry McCarthy
—————
In-Shalla
It appears that $450,000,000 per DAY of truck traffic trade ….trumps the blockade of the talking heads in Ottawa.
https://www.cbc.ca/news/canada/windsor/windsor-ambassador-bridge-police-protest-1.6350120
Personally I think that the truckers blockading the wags on Parliament Hill for months on end would have very little affect for the average citizen.
Blocking fresh oranges, car parts and toilet paper from crossing the border has a much more immediate effect.
A job well done by the police.
Anyone else planning to attend Berkshire’s live AGM this year?
I’m curious Ryan: Do you ever exit these factor based exposures or just adjust the weightings in portfolios? Seems difficult to get the macro picture correct and correctly time the trades otherwise. I’d be more inclined to believe in holding more value than quality / low vol in mid cycle, for example, rather than being completely out on a factor. It’s also interesting that while value + size are bad in a recession, they are the best factors coming out of a recession. So, getting that timing right will be difficult.
#70 Yukon Elvis
“I think you need a geography lesson. Kaliningrad is in Russia.
+++++++++++++++++++
Wrong. Look at a map.”
I thought that movie don’t look up was funny but a bit of an Exaggeration. I was wrong you literally won’t look at a map. Kaliningrad is as much a part of Russia as Alaska is a part of the United States.