It was a reader, Cédrick, who challenged me via Twitter on the question following the publication in the Globe & Mail an article on high interest ETFs.
“It might be interesting to talk regarding it in your columns,” he told me.
Indeed…
Exchange Traded Funds (ETFs)
Whenever I talk regarding exchange-traded funds, I get questions regarding how this investment product works. Let us recall the basics in a few lines:
A fund manufacturer collects money from investors in exchange for shares.
The money is invested according to a determined approach known to the clients (passive index, sector, active, etc.).
Unitholders may sell or redeem Units like Shares through a brokerage platform. Funds are identified by tickers.
The price of the Units varies according to the underlying assets and the supply and demand for the Units.
In the case of the ETFs discussed here, the investment strategy is not rocket science: the money is deposited largely in high-interest bank accounts. The investment therefore generates interest while being stable.
Better than savings accounts?
You will agree that the money travels a more complicated path than if you deposited it directly into a high interest account. This circuit is accompanied by management fees, all in all rather minimal (around 0.15%).
These ETFs still manage to provide 2.8% return these days, net of fees. That’s better than what savers can get at retail, at banks.
On the other hand, some brokerage platforms charge transaction fees, which affect performance. Also, the Globe & Mail once more, recently revealed that these products are not available at discount brokerages affiliated with TD Bank, RBC and BMO, apparently because they compete with high-interest accounts.
I asked Raymond Kerzérho, principal researcher at PWL, a firm that builds portfolios from ETFs, for an opinion. High-interest funds perform the same functions as bank deposits, he said, without offering Canada Deposit Insurance Corporation (CDIC) protection.
“My best advice is to shop around for the best possible rate and to make sure that the amounts invested are covered by CDIC as much as possible,” he continues.
That said, the funds we are talking regarding present a low risk.
What’s the point ?
But hey, why put your money there? Basically, to store your resources that you may need at any time. If the sums can sleep for a year or two, guaranteed investment certificates remain more advantageous, with rates that exceed 4%.
In a wallet, they are effective in keeping liquid portions. At the limit, they can serve as a temporary shelter when things are brewing on the stock market, but this kind of maneuver can make us miss the recovery.
This gives me the opportunity to give you news on the stock market. The Toronto Stock Exchange’s TSX index was up 5% in July. In New York, the S&P 500 returned more than 9% and the Nasdaq 11% during the same month.
If you were in your hideout, you missed this.
SIX HIGH INTEREST ETFs
- Horizons ETFs Cash Maximizer Account [Cash maximiser] (HSAV)
- Horizons High Interest Savings ETF (CASH)
- CI High Interest Savings ETF (CSAV)
- Purpose High Interest Savings ETF (PSA)
- High Interest Savings Fund (HISA)
- Ninepoint High Interest Savings Fund (NSAV)
